5 Aug 2011

NZ market follows global plunge

10:34 pm on 5 August 2011

New Zealand, Australian and Asian markets slumped on Friday as investors worldwide fear a possible lapse into recession and that the European debt crisis may spread.

The New Zealand sharemarket suffered its biggest one-day loss since 2009 after heavy falls on Wall Street overnight where the Dow Jones fell 4%.

The NZX 50 opened down 2% and ended the trading day 3% lower, losing 100 points to close at 3276. The Kiwi dollar also took a hit, falling about 3 cents against its US counterpart over the past day. On Friday night, it was trading at about $US83.7 cents.

Comments by the European Commission president Jose Manuel Barroso have sparked fears that the euro zone debt crisis may spread to Italy and Spain, and prompted investors to move towards so-called save haven assets.

Losses mounted throughout the afternoon after the Australian market opened down 5%, while Asian bourses, including Japan's Nikkei were down by between 3% and 5% during trading.

By the close the Australian market was 4% lower, wiping almost $A60 billion from the value of Australian stocks on Friday and took the cumulative loss to about $A100 billion over the past week.

The benchmark S&P/ASX200 index was down 171.1 points, or 4% at 4,105.4, while the broader All Ordinaries index was 183.2 points, or 4.21% weaker at 4169.7.

A sharebroker at Hamilton Hinden Greene, Grant Williamson, said stocks fell across the board. Investors sold shares and bought less risky assets such as treasuries and cash, though the reaction in New Zealand was not as sharp as other markets.

Brad Gordon, an adviser at Macquarie Private Wealth, told Radio New Zealand's Checkpoint programme while turmoil in the financial markets is uncomfortable for investors, it differs from the global financial crisis.

"What investors are more concerned about this time, is global growth and a sensitivity to the high debt levels that governments are carrying to potentially what looks like lower global growth."

Mr Gordon says the market is factoring in the chances of a recession in the United States.

Asian markets not immune

No market has been spared the panic sell-off, including those in Asia where the economies are thought to be fundamentally strong.

In Japan, shares tumbled 3.72%. The Nikkei index at the Tokyo Stock Exchange closed 359.30 points lower at 9,299.88.

Hong Kong stocks dived 4.29%, with the benchmark Hang Seng Index down 938.60 points to 20,946.14. Chinese shares were also lower, down 2.15%, with the Shanghai Composite Index shedding 57.62 points to close at 2626.42.

A currency strategist says Asian equity markets are not immune to what is happening in the northern hemisphere.

Speaking from Singapore, TD Securities' senior strategist Roland Randall told Radio New Zealand's Checkpoint programme the financial jitters are two-fold.

"There are some concerns about the re-run of a financial crisis, where we have a loss of confidence. But there is also a concern that the world is cycling down into a period of lower, or negative, growth.

"Those two things are both conspiring at the moment to make investors just really take risk off the table wherever they're selling."