NZ stocks rally, dollar falls on OCR cut as downturn bites

Thursday 29th January 2009

New Zealand stocks rallied, pushing the NZX 50 Index to its biggest gain this year, after the central bank cut its benchmark interest rate more than expected in response to the deteriorating global economy. The New Zealand dollar tumbled.

The NZX 50 gained 48.14, or 1.8%, to 2796.05 in the first hour of trading in Wellington. Within the index, 31 stocks rose, just one fell and 18 were unchanged. Turnover had reached $47 million by 11:17am.

The rate cut helped lift a market buffeted by the first recession in a decade and a backdrop of a global slump. Figures today showed the nation's trade deficit widened while the New Zealand government's operating financial balance worsened to a deficit of $5.72 billion in the five months ended November 30, versus the Treasury's estimate of a $1.4 billion surplus. The deficit reflected $4.2 billion of investment losses at government funds, the Treasury said.

"Demand is diminishing around the globe," said Rickey Ward, equities manager at Tyndall Investment management.

Stock exchange manager NZX Ltd. led the rally, gaining 7.7% to $5.20 after announcing it was in advanced talk to sell its registry business TZ1 Registry to Markit, a global financial information services company headquartered in the UK. The acquisition is expected to complete in the first quarter of 2009, it said.

Telecom Corp., the biggest phone company on the exchange, rose 2.7% to $2.67, as the central bank's rate cut drives deposit rates lower and makes stock yields more attractive.

At today's price, Telecom has a dividend yield of 16%, based on its past four quarters of payments. National Bank's Thoroughbred Saver savings account offers 2.75% interest for amounts up to $5,000.

"With rates coming down the interest you can earn from putting your money into the bank is clearly a lot lower," Tyndall's Ward said. Investors are looking at companies "that can provide a better income than a fixed interest investment."

Telecom's dividends are "expected to remain intact for a bit longer," he said.

The New Zealand dollar dropped below 52 US cents after after Reserve Bank Governor Alan Bollard cut the official cash rate a greater-than-expected 150 basis points to 3.5% and flagged the potential for more cuts this year as the global recession deepens and inflation dissipates. The currency was recently at 52.44 cents, down from 52.99 cents before Bollard's statement.

The rapid global economic decline means the bank has a "more negative outlook for the terms of trade and exports, and tighter credit conditions," Bollard said today.

Pay-TV operator Sky Network Television, whose equipment and programming costs are in US dollars, rose 2.5% to $4.15. Fisher & Paykel Healthcare, which gets 80% of its revenue in US dollars, rose 1.8% to $3.38.

PGW Wrightson, the biggest rural services company on the NZX 50, rose 4.1% to $1.28. A weaker dollar helps offset slumping returns for its farmer customers as a result of the global downturn in demand.

Bank of New Zealand currency strategist Danica Hampton said the kiwi dollar may extend its decline to trade around 51.50 US cents. "Looking forward, the risk is to the downside," she said.

Bank of New Zealand economists today sharply revised down their track for the OCR, to reach 2% this year.

Fonterra Cooperative Group, the world's largest dairy exporter, yesterday announced a worse-than-expected payout to dairy farmers to $5.10 per kilogram, citing the slump in world dairy prices. Dairy products make up about a fifth of the nation's exports.

New Zealand's trade deficit widened more than expected in the 12 months ended Dec. 31 to $5.62 billion, from $5.23 billion in the year ended Nov.30, according to Statistics New Zealand. Exports growth slowed to 4.5%, bringing the value to $3.85 billion, which include a one-time sale of an aircraft for $148 million.

"The extent of the decline in global growth prospects and the ongoing uncertainty has played a large part in today's decision," Bollard said in Wellington today. "We now expect the impact on New Zealand of these developments to be greater than we did in December, as a result of a more negative outlook for the terms of trade and exports, and tighter credit conditions."

The NZX-listed shares of Australia & New Zealand Banking Group climbed 4.5% to $16.98 and Westpac Banking Corp. rose 6.8% to $20.40 after the central bank's release. The lenders also gained as optimism the US government will step up efforts to restore financial markets sparked a global rally in bank stocks. Citigroup jumped 19% on the Dow Jones Industrial Average and Lloyds Banking Group soared 50% on the FTSE 100 Index in London.

Fletcher Building climbed 3.1% to $5.65 and Steel & Tube Holdings rose 3.7% to $2.81 on optimism lower interest rates may lift demand in the housing and construction sectors.

By Jonathan Underhill

Comments from our readers

No comments yet