MARKET CLOSE: NZ shares extend slide; Mercury, Meridian and Air NZ decline

Wednesday 14th September 2016

New Zealand shares extended their slide with little positive news to stem the decline. Mercury New Zealand, Meridian Energy and Air New Zealand fell.

The S&P/NZX 50 Index dropped 38.5 points, or 0.5 percent, to 7,210.73. Within the index, 30 stocks fell, 12 rose and eight were unchanged. Turnover was $197 million.

Investors are waiting for positive company news to reassure them as local index selling, which began on Monday following a Wall Street selloff driven by comments made by US Federal Reserve officials about the likelihood of a US rate increase, continues, Peter McIntyre, investment adviser at Craigs Investment Partners, said.

"We're heading into annual general meeting season and a lot of investors and analysts are looking for company outlooks," McIntyre said. "We had a strong reporting season, now we've got volatility driven from offshore, and there's just a lack of news which is probably going to drive investors to the sideline. Unless we start getting some really positive commentary from the AGMs to further confirm company outlooks. A lot of the market has been driven higher by offshore investors, and they don't like higher interest rates."

Mercury New Zealand was the worst performer, down 8.3 percent to $2.87. The stock has shed 12.7 percent since last Tuesday, when it reached an eighteen-month high of $3.288 having risen following its annual earnings announcement in August.

Risk aversion and a global rout in bonds have pushed up interest rates, denting the appeal of stock yields. Local interest rate swaps rates have gained, with the 10-year swap rate up more than 18 basis points to about 2.59 in the past week.

"We've seen our interest rate swaps rise quite dramatically since Monday, that's where our banks swap their fixed and floating rates and it's a benchmark for setting interest rates for the likes of corporate bonds which has a direct pricing into equities," McIntyre said. "We've seen some interest-rate-sensitive stocks being sold off on the basis of that, and it's a question of who's going to run first at the moment it seems. Particularly the utility-based investments - Chorus, Genesis, Meridian - and the property-based stocks - Goodman and Precinct - they're all interest rate-sensitive stocks, the uplift in the swap rates has had an impact on our market."

Meridian Energy dropped 3.3 percent to $2.77, Goodman Property fell 3 percent to $1.31, Genesis Energy declined 2.6 percent to $2.24 and Chorus gave up 1.6 percent to $3.985.

Air New Zealand fell 2.5 percent to $1.935. The airline gave its August operating statistics today, and said load factors had fallen on domestic, trans-Tasman and long haul routes.

"It's disappointing - they're finding things are a little weaker within their own business and competitors are coming into the market, which will have an impact on yields and margins eventually," McIntyre said. "They gave good guidance around their reporting time, saying they're not expecting the same profitability over the next twelve months as they have previously, but certainly the last two operating and statistical performances they've put out have been weaker."

Skellerup Holdings was the best performer, up 3 percent to $1.36.

"They're having a strong day on really good volume for them, it's a cyclical stock and with the uptick in the dairy sector after the last three Global Dairy Trade auctions it's looking far brighter than what it has," McIntyre said. "The dairy sector's looking far more positive and they sell products which have to be used on a weekly basis, so I think investors have a lot more confidence."

Tegel Group rose 1.8 percent to $1.72 and Sky Network Television gained 1.5 percent to $4.79.

Outside the main index, Veritas dropped 9.1 percent to 20 cents. Salt Funds Management, which manages $1.6 billion of assets, has lifted its stake in the Mad Butcher franchisor, taking advantage of a slump in its share price, which has tumbled since it filed its 2016 unaudited financial results on Aug. 29 when the shares were trading at 47 cents.

Turners gained 1.6 percent to $3.13. The financial services firm, formerly known as Dorchester Pacific, said pretax earnings may rise 14 percent in the first half, putting the company on track for annual profit growth.

BusinessDesk.co.nz

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