Infratil investors weren’t too enamoured by the passage of US President Donald Trump’s big and beautiful tax and spending bill through the House of Representatives as they ponder what the faster end to Joe Biden’s green tax credits means for the infrastructure investor’s Longroad division.
Bond markets have been roiled by the prospect of the free-spending White House and its pathway to deeper federal deficits and bigger government debts, with yields creeping higher and injecting unease through wider markets.
New Zealand’s S&P/NZX 50 index, which has many constituents held for their reliable dividends, has been pushed on to the back foot by those more attractive yields, snapping three weeks of gains as it declined 1.5%. That unease over the relativities between dividends and bond yields came to the fore as Channel Infrastructure rallied on a more generous dividend policy.
Meanwhile, Fisher & Paykel Healthcare was on the red side of the ledger after Jefferies downgraded its rating on the medical device maker.
A Kiwi laggard
The NZX50 fell 65.75 points, or 0.5%, to 12,596.5, with 20 stocks weaker, 26 gaining, and four unchanged. Turnover was $141.6 million across the main board.
The local market lagged behind most of Asia, with Australia’s S&P/ASX 200 index up 0.1% in late trading, while Japan’s Nikkei 225 rose 0.4% and Hong Kong’s Hang Seng gained 0.6%.
Investors have been grappling with rising government bond yields since Moody’s Ratings downgraded the US over the mounting government debt projected for the world’s biggest economy.
The yield on 10-year US Treasuries fell 6 basis points to 4.53% overnight, but is still up from 4.43% a week ago, while the yield on New Zealand’s equivalent note ended the week at 4.67%, up 5 basis points from a week ago.
That was aggravated by US President Donald Trump’s multitrillion-dollar tax and spending bill, which is estimated to widen federal budget deficits by US$2.7 trillion through to 2034.
“Markets are concerned about government fiscal positions and want to see a return to tighter fiscal policy to deal with it,” said Matt Goodson, managing director at Salt Funds Management.
New Zealand’s government yesterday unveiled its budget, with finance minister Nicola Willis mapping out a slow pathway to a small surplus in the June 2029 year, keeping fiscal stimulus upfront to help nurse the tepid economy through its recovery.
The kiwi dollar traded at 59.15 US cents at 5pm in Auckland from 59.01 cents at 7am and 59.32 cents yesterday.
No to green subsidies
Changes made to Trump’s bill through jockeying to pass it through the House of Representatives will accelerate the unwinding of Joe Biden’s green subsidies, weighing on NZX-listed Infratil through its US renewable energy firm Longroad.
Infratil fell 3.1% to $11.15, pacing declines on the local bourse today.
“How it ends up after the Senate reviews it is anyone’s guess,” Goodson said. “The problem with the bill is they’re short of funds – the cup is not overflowing.”
Goodson said most analysts estimate Longroad to be about 10% of Infratil’s valuation, and some of the unwinding of the Biden-era tax credits might have been built into the current price.
Fisher & Paykel Healthcare also weighed on the benchmark index as it fell 1.7% to $36.11 after Jefferies downgraded its rating on the medical device maker to a ‘hold’ from a ‘buy’, while keeping its price target at $39.40.
And blue-chip energy company Meridian Energy – often held for its reliable dividend – was another major brake on the NZX50 as it declined 1.9% to $5.70.
Vista Group International led the local market lower, falling 4.1% to $3.50.
Import terminal operator Channel Infrastructure rose 4% to $2.10 after the board hiked its dividend and increased the payout policy.
Warehouse Group posted the biggest gain on the NZX50, rising 4.7% to 89 cents after Statistics New Zealand figures showed surprising growth in consumer spending in the first three months of the year. Hallenstein Glasson advanced 0.1% to $7.67, KMD Brands was unchanged at 32.5 cents, and Briscoe Group declined 0.8% to $4.83.
Fletcher Building was the most heavily traded stock on the day with a volume of 4.5 million shares, of which 4 million changed hands in a single trade at $3.29 a share. The stock declined 0.9% to $3.27.
