NZ share market stages comeback

The New Zealand share market staged a comeback today after at one point being 2.5% down on the back of China's share market rout, but by the close of business investors were left in no doubt as to their vulnerability to problems in the world's second biggest economy.

The S&P/NZX-50 Index ended just up 6 points at 5613 having earlier gone as low as 5462, with a partial rebound in Australian stocks providing the catalyst for renewed buying.

By late in the Australian session, the All Ordinaries Index was up 100 points, or 2%, after falling by 4.1% on Monday.

The Kiwi dollar also reclaimed ground after a China-inspired selldown, trading at US64.99c after briefly slumping as low as US62.44c but US1c down from Monday's close.

Concerns about China - New Zealand's biggest customer for dairy exports - showed through in the NZX wholemilk powder futures market where there was selling across the curve after a substantial rally over the last fortnight.

JB Were investment strategist Bernard Doyle said there was relief that equity markets here and in other parts of the region had reclaimed ground after posting big losses on Monday.

"It's been a 90% sentiment, 10% reality type of sell-off, so any evidence of stabilisation is a good sign," he said. "From our perspective, I think you need a little more than that to take away the underlying fragility of the market," he said.

Doyle said JB Were remained "constructive" about equities generally, particularly when most central banks around the world were keen on stimulating growth, but he said more information was needed on China's economic growth prospects before markets could settle.

Nigel Brunel, director of financial markets at OM Financial, said the markets had entered a phase of considerable volatility with China at its centre. "This may have an impact and knock-on effect on commodity markets, including milk," Brunel said.

The Shangai Composite Index, which dropped by 8.5% on Monday, was still weak but off its session lows, to be at down 5%.

Fund managers said that while the local market could expect to see more turbulence arising from volatility in offshore markets, but that the New Zealand economy was in better shape than many of its peers.

Furthermore, the Reserve Bank had more leeway to cut official interest rates if there was a marked turn for the worse. The official cash rate stands at 3%, and economists expect to see two rate cuts of 25 basis points apiece before the year is out.

Analysts and fund managers said the decline could present a long over due correction after a very strong for equities both domestically and overseas.

"We have had a very strong run in the capital markets in the last three years and it's not a surprise to to see it falling back," Mark Lister at Craigs Investment Partners said

In the United States, the market has gone up by 100% in the past five years.

"It's been four years since we've had a correction of any magnitude and have had six or seven great years," Lister said.

 "We just hope that it doesn't turn into anything more sinister."

By Jamie Gray of the New Zealand Herald

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