The latest index, released this morning, was down 3.9%, or $166 million, for the three months ended June compared with the quarter ended March.
"What we are seeing now is the South Island economy bumping along the bottom, albeit, it appears, with some insulation from the more volatile national picture," Deloitte Christchurch corporate finance partner Paul Munro said.
That meant that growth would need to be sustained for several consecutive quarters before there was real confidence that the market was recovering.
The latest index results reflected recent indications of a dip in business confidence, he said.
Growth during the six months to March 31 had been wiped out in the last two months of the June quarter.
Compared with the previous year, the index market capitalisation of $4.1 billion was $385 million higher than in June last year.
The decrease in market capitalisation in the past three months was worrying but it was not as significant as the national trend with the NZX-50 falling 9.1% in the same period, Mr Munro said.
Hardest hit in the South Island were: Kathmandu Holdings, down $86 million, or 17%; Pyne Gould Corporation, down $77.4 million, or 21%; and PGG Wrightson, down $513 million, or 12%.
Companies that had bucked the downward trend had done so largely through capital raising activity.
They included New Zealand Windfarms and Pike River Coal.
Skyline Enterprises, NZ Wool Services and Skellerup Holdings all experienced increasing share prices.
Queenstown-based Skyline saw its share price grow by 44% in the year to June.
In the latest quarter, the tourism operator's capitalisation increased by $23.7 million, or 13%, purely as a result of share-price growth.
Skellerup was included in the index for the first time in the quarter as a substantial portion of its operations were focused in the South Island, Mr Munro said.
Of the 30 companies listed on the South Island index, 16 experienced a fall in market capitalisation.
The remaining 14 either maintained or increased their market capitalisation.
On an industry sector basis, the biotechnology sector had the largest percentage increase in market capitalisation, gaining 4.4% in the June quarter.
Although small, growth was positive and was something the financial services and retail sectors would appreciate as both had experienced falls in market capitalisation of more than 15% in the quarter, he said.
"If new-car sales are anything to go by, things may be looking up as sales of new vehicles in June were reported to be the highest monthly sales number for 20 months.
However, as the motor industry receives good news, the wine industry is facing oversupply issues form the 2008 harvest."
In addition to the challenges facing all exporters flowing from the international economic crisis and the strong New Zealand dollar, wine-sector participants were facing very tough times, with many growers and wineries operating in the red and well below budget, Mr Munro said.
