NZX50 dodges worst of market ructions over Iran conflict fears

New Zealand’s S&P/NZX 50 index dodged the worst of the rout across Asia as investors remained uneasy about US President Donald Trump’s military campaign against Iran, which has seen oil prices jump to near two-year highs and bonds sold off as traders fear an inflation revival will see the Federal Reserve pause its predicted rate hikes.

Infratil was the biggest drag on the local market, with a raft of blue chip names on the red side of the ledger, including Auckland International Airport, Fletcher Building and a2 Milk Co, while Serko posted the steepest decline on the day.

The kiwi dollar clawed back some of its losses against the greenback after Statistics New Zealand figures showed the country’s terms of trade improved more than expected in the December quarter, as rising export prices boosted the purchasing power of those foreign sales, and as milk prices rose at the Global Dairy Trade auction, while stronger economic growth than expected across the Tasman added further conviction that the Reserve Bank of Australia will hike its benchmark rate this month.

And Genesis Energy navigated the heightened volatility as its shares remained above the offer price in a discounted rights issue to help fund new generation, and Mercury NZ dipped less than the value of the dividend rights it shed.

Fortress New Zealand

The NZX50 fell for a third day, slipping 89.09 points, or 0.7%, to 13,531.12, with 37 stocks declining, 10 gaining and three unchanged. Turnover across the main board was $126.5 million, of which Fisher & Paykel Healthcare accounted for $17.6 million as it nudged up 0.2% to $41.10.

The local stock market fared better than most of Asia as the march higher for Brent crude oil prices – futures were up 1.2% at US$82.37 a barrel at 5pm in Auckland – kept investors uneasy about how long the US conflict with Iran would drag on for.

Australia’s S&P/ASX 200 index dropped 2% in late trading, while Japan’s Nikkei 225 fell 3.6% and South Korea’s Kospi sank 7.4%. Investors returned to the haven of gold, with futures up 1.2% at US$5,183 an ounce.

Local mining stocks were weaker, despite the reversal in metal prices through the Asian session, with Santana Minerals falling 4.7% to $1.015, Manuka Resources sinking 8.1% to 17 cents, Rua Gold slipping 1.6% to $1.87 and Minerals Exploration unchanged at 19 cents.

Meanwhile, New Zealand’s shorter-dated interest rates crept higher as the prospect of an energy shock fuelled inflationary fears, with the two-year swap rate up 4 basis points at 3.02%. The yield on New Zealand’s 10-year government bond was unchanged at 4.4%, while the US equivalent increased 1 basis point to 4.06%.

“There seems to be a view that it’s not going to be a prolonged conflict,” said Greg Smith, investment specialist at Generate Investment Management. “The Kiwi market’s held up better than a lot of others and reinforces the defensive attributes of our market.”

Old friends

Familiar names dragged New Zealand’s benchmark stock index lower, with Infratil falling 2.5% to $10.75, Auckland Airport declining 1% to $8.94, a2 Milk decreasing 1.9% to $11.43 and Fletcher Building – which attracted speculation of being a takeover target this week – slipped 2.8% to $3.43.

Travel and tourism companies joined the worldwide decline, with travel software developer Serko posting the biggest decline on the NZX50, falling 5.7% to $1.83, while Tourism Holdings dropped 3.1% to $2.50, SkyCity Entertainment Group decreased 2.4% to 81.5 cents and Air New Zealand slid 1.8% to 54 cents on the day’s biggest volume of 8.3 million shares.

Mercury fell 0.2%, or 1 cent, to $6.44 after shedding rights to a 10 cents per share dividend.

Meanwhile, Genesis Energy slipped 2.2% to $2.21 as it launched the $300 million retail component of a $400 million capital raising initiative to help fund its development programme. The shares held above the discounted $2.05 offer price.

NZX declined 1.4% to $1.41 after its latest metrics showed a 34% decline in the value of cash trading in February from a year earlier, while funds under management for its Smart business grew 19% to $16.24 billion.

Retail Briscoe Group posted the biggest gain on the NZX50, up 1.7% at $4.70, while Mainfreight gained 1.3% to $63.65 amid reports US President Trump said the US would guarantee insurance and provide naval escorts to ensure safe passage through the Strait of Hormuz.

Fonterra Shareholders’ Fund units rose 0.2% to $8.21 after milk prices rose at the latest GDT auction.

Meanwhile, Stats NZ figures showed New Zealand’s terms of trade, which measure the purchasing power of the nation’s exports abroad, rose 3.7% in the December quarter on rising export prices. The series is strongly correlated to the New Zealand dollar, which clawed back losses against the greenback, trading at 59.05 US cents at 5pm in Auckland from 58.79 cents at 7am and 59.47 cents yesterday.

The kiwi rose to 84.20 Australian cents from 83.61 cents after Bureau of Statistics figures showed Australia’s gross domestic product grew at an annual pace of 2.9% in the December quarter, faster than economists predicted.

Reporting by Paul McBeth. Image from Curious News.