NZ market buffeted by global fall

US Federal Reserve chairwoman Janet Yellen remains optimistic. Photo by Reuters.
US Federal Reserve chairwoman Janet Yellen remains optimistic. Photo by Reuters.
A line-up of NZX50 heavy hitters due to report their interim profits this week may start to calm the nerves of investors worried about ongoing market volatility.

Among those reporting are Trade Me, Fletcher Building, Spark, Port of Tauranga, Auckland International Airport and Chorus.

Craigs Investment Partners broker Chris Timms said ‘‘all bets are off'' for the NZX, as investor sentiment was being driven by events overseas.

The NZX fell below 6000 points last week for the first time since October 27 last year.

The United Kingdom's FTSE 100 fell last week, and only a handful of companies reported gains. Banking and financial stocks were the hardest hit.

The Stoxx 600 European Index finished well into negative territory and all sectors fell. Both the Dow Jones and the S&P 500 reported their fifth straight loss.

‘‘Risky assets are being left in favour of financial safe havens like gold, which has risen more than 7% since the start of the month,'' Mr Timms said.

‘‘If the Dow Jones continues to weaken, we will take our lead from the index. In New Zealand, we wait and see what happens in Asia but, if the Dow remains weak, I expect we will, as well.

‘‘Maybe the middle of the reporting season will let us see sense.''

Since the global financial crisis, New Zealand companies had paid down debt and got themselves into a strong financial position with free cash flow.

That allowed them to provide a good income stream for investors, he said.

The companies reporting from Wednesday were expected to report good results and provide stability to the market.

Mr Timms said he understood the concern of investors.

The New Zealand market had enjoyed six or seven years of ‘‘reasonably solid growth'' across the board.

There were recent investors who had never experienced significant volatility.

One reason for the latest upheaval was the use overseas of computer-generated triggers and algorithms, which almost created self-perpetuating prophecies, he said.

When markets reached certain trigger points, the computer programmes and algorithms automatically either sold or bought.

‘‘That can lead to people following the lead before reality sets in. It is a broker's dilemma. If clients sell, markets can go up and if you hold, markets can go down.''

In the United States, Federal Reserve chairwoman Janet Yellen maintained a brave face amid worsening global stock markets.

There is growing scepticism the US central bank can carry out its long-planned return to ‘‘normal'' monetary policy.

Dr Yellen told the Senate Banking Committee the bank was watching carefully.

‘‘I would say there is always a chance of a recession in any year. But the evidence suggests that expansions don't die of old age.''

She acknowledged the concerns at weakness overseas and the downward pressure falling oil prices were putting on US inflation, which remains below the Fed's target range of 2%.

Mr Timms said investors had grown deeply sceptical the Fed, which raised interest rates for the first time in nearly a decade in December, would be able to continue tightening monetary policy.

Future investors had fully discounted expectations of a rate rise this year, he said.

 

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