MARKET UPDATE: NZX 50 drops, F&P Appliances leads decline

Wednesday 11th February 2009

New Zealand shares fell, with the NZX 50 Index heading for its biggest drop since mid-January, following a slide on Wall Street and concern Fisher & Paykel Appliances will be hit by the global downturn.

The NZX 50 fell 28.133, or 1%, to 2721.917 in the first hour of trading in Wellington, its third daily decline. Within the index, 29 stocks fell, 19 were unchanged and just two gained.

The Dow Jones Industrial Average tumbled 4.6% to 7888.88 yesterday, in the biggest slump since President Barack Obama's inauguration. Bank of America plunged 19% and Citigroup was down15%, leading the Dow lower, on disappointment Treasury Secretary Timothy Geithner didn't give more details of the revamped bank rescue package which will soak up toxic bank debt and provide funds for consumer lending. The decline started in Europe and is set to spread through Asia today, with Australia's S&P/ASX 200 Index down about 2% in early trading.

F&P Appliances dropped 2.7% to a record low $1.09 and is down 16% in the past month. The shares have slid this week after Whirlpool Corp., the world's biggest appliances maker and its distribution and technology partner, posted a slump in earnings and chief executive Jeff Fettig said the global slowdown "had a significant impact on consumer demand in all parts of the world."

Warehouse Group fell 2.3% to $3.40, leading consumer stocks lower, after government figures showed credit and debit card transactions at retailers declined 0.2% last month. Jewellery chain Michael Hill International fell 1.9% to 52 cents and clothing retailer Hallenstein Glasson Holdings slipped 0.9% to $2.20. Wellington department store Kirkcaldie & Stains was untraded after its announcement late yesterday that first-half profit may tumble 50%, reflecting a tough retail market.

Fletcher Building dropped 1.3% to $5.45, the lowest since early December, even after the government announced $500m million of fast-tracked infrastructure spending on transport projects, school buildings and state housing. The nation's biggest construction company tomorrow is expected to post a 20% drop in first-half earnings.

Telecom Corp., which is expected to report a drop in second-quarter earnings from last year's $172 million on higher costs and loss of customers from its fixed-line network, fell 1.9% to $2.58.

With the prospects of a weaker earnings season "a lot of it is factored in already" to stock prices, said Paul Richardson, chief investment officer at BT Funds Management. There's still a possibility for "the odd few shocks," he said.

Rakon, which makes components for navigation systems, fell about 2% to 91 cents and is down 25% in the past month. Sky City Entertainment fell 2% to $2.92.

Australian bank shares on the NZX 50 fell, following the decline in financial on Wall Street. Australia & New Zealand Banking Group slid about 2% to $15.10 and Westpac Banking Corp. fell 2.2% to $19.85.

Sealegs Corp., the maker of amphibious boats, surged 25% to 10 cents, clawing back most of its 38% slide yesterday, when it abandoned plans for a rights issue because of the global economic slump.

Richardson said volatility in markets and sliding stock prices have "presented some long-run investment opportunities" with some companies now trading at favourable price-to-earnings rations. Some 16 stocks on the NZX 50 are trading at less than eight times earnings.

"This is when you show your stripes as an investor," Richardson said. "You don't get too many opportunities to acquire businesses very cheaply."

Based on their most recent earnings, New Zealand Oil & Gas is trading at a PE ratio of just 3.8 and Guinness Peat Group is at 3.45. Guinness Peat was unchanged today at 83 cents and NZOG fell 1.4% to $1.38.

Richardson said there are signs that a recovery process in equity markets is underway. Some A$38 billion of capital raisings by Australian companies has been soaked up and will be used to restore corporate balance sheets. New Zealand balance sheets "are not too badly off," he said.

"It does show you that markets have opened up again," he said.

Last year was one of the worst on record for shares, based on the Standard & Poor's 500 Index, with the slump about matching the decline in 1930 and 1931. That was followed in 1933 by one of the biggest rallies in history, according to Richardson.

By Jonathan Underhill

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