Middle East flare-up weighs on NZX50 as Willis maps path to early surplus

New Zealand’s S&P/NZX 50 index tapered off through the day as a series of strikes in the Middle East sapped optimism for a peace deal, which had already got mixed messages from President Donald Trump’s dissatisfaction with how negotiations were progressing.

Finance minister Nicola Willis unveiled her third budget, with a tight rein on the books set to return the government’s operating balance to surplus a year earlier than previously predicted – albeit on forecasts economists largely viewed as optimistic.

Mainfreight climbed to a two-month high after its annual report met expectations, cooling fears the logistics firm would be knocked harder by the energy shock, while Fonterra Shareholders’ Fund units rallied as the dairy exporter lifted its earnings outlook for the year and announced an opening farmgate milk price forecast at the top of expectations.

And Stride Property declined as investors in the Diversified Property Fund it manages will soon decide on whether to wind up the fund.

Fire in the hole

The NZX50 fell 21.7 points, or 0.2%, to 13,206.11, with 30 stocks falling, 16 gaining and four unchanged. The S&P/NZX 20 index futures contract for June rose 0.2% to 7,515, with 130 lots traded for a value of $978,000. The NZX20 fell 0.2% to 7,493.38.

Turnover across the main board was $198.2 million, of which Infratil accounted for $25.3 million as it dipped 0.8% to $15.87.

Heavyweights added to the drag on the NZX50, with Meridian Energy falling 0.9% to $5.84, Mercury NZ declining 0.6% to $6.90 and Auckland International Airport down 1.1% at $8.21.

The benchmark index turned late in the day in a broadly softer session across Asia as a series of military strikes between the US and Iran reignited fears that the conflict would linger. The Polymarket prediction market was pricing in an 8% chance of a lasting deal being reached in the final days of May, and a 43% chance by the end of June.

Australia’s S&P/ASX 200 index was down 1.6% in late trading, while Japan’s Nikkei 225 dropped 1.5% and Hong Kong’s Hang Seng sank 2.3%. Brent crude oil futures rose 3.8% to US$95.72 a barrel at 5pm.

“Asian markets were down quite hard on the news of the flaring up in the Middle East,” said Matt Goodson, managing director at Salt Funds Management. “As soon as the headlines come, people start selling.”

The international tensions came as the government’s budget projected a return to an operating surplus by the June 2029 year – earlier than in the half-year update – and with a reduction in the debt programme. The yield on New Zealand’s 10-year government bond increased 2 basis points to 4.62% and the kiwi dollar traded at 58.68 US cents from 58.76 cents yesterday.

Westpac NZ economists Kelly Eckhold and Michael Gordon said the budget revealed a surprisingly robust fiscal outlook, with the near-term impacts of the Middle East conflict offset by tax-rich growth outlook.

“With faster growth in the nominal economy, this means that government spending as a share of GDP declines faster than previously expected,” Eckhold and Gordon said in a note. “We think that spending will ultimately prove to be higher than this in the later years, as it will be difficult for future governments to maintain this degree of spending discipline for this long.”

Still trucking

Freightways – often seen as a barometer for the domestic economy – rose 0.3% to $13.43, while building materials firm Fletcher Building fell 2.5% to $3.10.

Travel software developer Serko led the NZX50 lower on the day, down 4.5% at $1.60, while Investore Property dropped 4.3%, or 4.5 cents, to $1.005 after the big-box retail landlord shed rights to a 1.625 cents per share dividend.

Stride Property declined 1.3% to $1.15 after reporting a 1.7% lift in annual distributable profit and signalling an unchanged dividend in the coming year. The landlord said its Diversified Property Fund was coming to a review date when its investors could vote on liquidating the fund if they chose.

Mainfreight posted the biggest gain on the day, climbing 6.7% to $62.60 after reporting an 8.5% slide in annual profit as margins were squeezed.

Salt’s Goodson said the result was largely in line with expectations, and the Australian division was a little better than anticipated.

“It’s possible they come out of this and might be upgraded, although it’s a little hard to see how repeatable it is,” he said.

Fonterra Shareholders’ Fund units rose 3.3% to $7.20 after the dairy exporter lifted its forecast earnings range to 60-to-70 cents per share from 50 cents-to-65 cents as its underlying earnings nudged up in the nine months ended March 31, while announcing an opening forecast milk price of $8-to-$11 per kilogram of milk solids.

Vista Group International advanced 4.4% to $2.62 after Forsyth Barr analysts raised their target price on the stock, while outside the benchmark, Black Pearl Group dropped 8.9% to 71.5 cents – giving up some of the prior day’s gain – after more than doubling annual recurring revenue in the March year.

Reporting by Paul McBeth. Image from Curious News.