Market barometer: NZ holds up as rest of the world shakes

Friday 2nd March 2001

Sharemarkets around the world are shaking from the impact of lower profit reports and warnings. Staff layoffs of substantial numbers by many listed companies suggest that firms are battening down into recessionary mode.

The impact on consumer confidence will be negative and, if sufficiently harsh, could dampen the likelihood of early recovery. Bond markets are rallying on the stimulus of lower interest rates and the tendency for capital to fly to safety in uncertain times. A stronger US dollar could affect the value of our sharemarket as downside currency risk returns to the kiwi.

The New Zealand sharemarket continues overall to hold up reasonably well as confidence indicators rise. There is some suggestion the mood has lifted toward residential property, which dovetails in with greater business and consumer confidence locally.

The Reserve Bank's views on interest rate settings will be aired on March 14 and will have some bearing on whether confidence is premature. Softening of the Australian economy and political turmoil influenced by the resurrection of Pauline Hanson's spoiling effect on the conservative vote could at some stage diminish New Zealand's own prospects.

Projections for continued upturn in export sectors like tourism presuppose that overseas economies will continue to hold up, but the impact of the Asian economic crisis on our tourism industry should not be forgotten. The slowdown is general across our major tourist markets. Japan, which is dropping further into economic difficulties, may be exacerbated in its mounting crisis by a general election due in July that could produce an even weaker and less competent government.

Glowing assumptions about New Zealand's outlook, maintained in fairly stabilised share prices, could be a case of counting chickens before they've hatched.

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