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MARKET CLOSE: NZ shares join global rally as Fed poised to keep rates low; Air NZ falls again

Thursday 31st January 2019

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New Zealand shares joined a global rally, led by A2 Milk Co, as local investors were buoyed the prospect of low US interest rates keeping equities attractive. Air New Zealand fell for another day. 

The S&P/NZX 50 index rose 59.82 points, or 0.7 percent, to 8,985.34. Within the index, 28 stocks gained, 15 fell, and seven were unchanged. Turnover was $132.7 million. 

Stocks across Asia followed Wall Street's lead after the Federal Reserve kept its benchmark rate unchanged and said it would be patient in raising them. At the same time, upbeat results from Apple, Boeing and Facebook helped ease fears that a slower Chinese economy would dent corporate earnings. Australia's S&P/ASX 200 index was up just 0.1 percent in afternoon trading, while China's Shanghai Composite rose 0.6 percent. Korea's Kospi 200 was up 0.2 percent. 

Greg Smith, head of research at Fat Prophets, said investors had lower expectations for US company earnings and were surprised by the stronger results. The Fed's more subdued outlook for interest rate hikes also supported equity markets. 

"Investors seem to be more optimistic given what's been going on," he said. 

A2 led the market higher, up 3.7 percent at $12.65 on a volume of 1.3 million, in line with its 90-day average. The milk marketing firm is the second-biggest company on the NZX and generates a lot of its revenue selling infant formula in China. Synlait Milk, which supplies A2, fell 1 percent to $9.24 on light volumes. 

Air New Zealand fell for a second day after it downgraded its earnings outlook, as ongoing issues with some Rolls Royce engines disrupt its schedule, domestic travel growth has been more muted than expected, and inbound tourism is tapering off from record highs. The shares declined 0.7 percent to $2.81 on a volume of 1.9 million, more than twice its 759,000 three-month average.

First NZ Capital analyst Andrew Steele warned the airline may face more pressure on its earnings. But he upgraded the stock to 'neutral' from 'underperform', saying the recent slump better reflected the risk-reward balance. 

The airline's outlook weighed on other tourism-related stocks, but they bounced back today. Tourism Holdings was up 1.7 percent at $4.88 and Auckland International Airport rose 1.1 percent to $7.35, on volume of 1.5 million shares. 

Smith said Air New Zealand's gloomier outlook for domestic travel was a concern for the wider economy given its dominance in the local market. 

"I don't think that will be the last downgrade that comes from that company," he said. 

SkyCity Entertainment Group rose 1.6 percent to $3.84. The hotel and casino operator raised its earnings guidance earlier this week. Morningstar Research retained its fair value estimate at $4.20, saying the shares offer an attractive dividend yield and are slightly undervalued. 

Spark New Zealand was the most active stock with 7.8 million shares traded, more than twice its 3.4 million average. The stock gained 1.6 percent at $4.055. Kiwi Property Group rose 0.4 percent to $1.42, its highest close in 13 months, on volume of 1.5 million shares. 

Of other stocks that traded on volumes of more than one million shares, Mercury NZ fell 0.8 percent to $3.53 and Meridian Energy fell 1.4 percent to $3.52. 

Westpac Banking Corp posted the biggest decline, down 1.5 percent to $26. Australia & New Zealand Banking Group fell 0.8 percent to $26.50. 

Fonterra Shareholders' Fund units increased 0.2 percent to $4.74. Fonterra Cooperative Group shares, which trade in a closed market, were unchanged at $4.74. The dairy company said local milk collection was tracking 4.1 percent higher in the seven months through December, buoyed by helpful weather conditions. 


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