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MARKET CLOSE: NZ shares drop to 4-month low following Wall St rout; A2 slumps 11%

Thursday 11th October 2018

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New Zealand shares joined Wall Street's rout, falling to a four-month low as investors sold out of growth-orientated stocks against the backdrop of rising US interest rates. A2 Milk Co led the slide, shedding more than a tenth of its value. 

The S&P/NZX 50 index dropped 329.62 points, or 3.6 percent, to 8,721.20, its ninth straight decline. Within the index, 49 stocks fell and just Sanford gained, up 0.3 percent to $7.68. Turnover was $138.2 million. 

The benchmark index has been on the turn for more than a week as US 10-year Treasury yields rose to a seven-year high as investors firmed up forecasts for the Federal Reserve to raise interest rates. Investors turned that up a notch for equity markets in New York, with the Dow Jones Industrial Average dropping 3.2 percent in a period of heightened uncertainty. 

The NZX50's decline was steeper than its Australian counterpart with the S&P/ASX 200 index down 2.3 percent in afternoon trading. The Shanghai Composite Index dropped 4.3 percent and Hong Kong's Hang Seng was down 3.8 percent. 

"What's unusual about it is that New Zealand usually does a bit better than Aussie," said Stuart Williams, head of equities at Nikko Asset Management. "That's roughly accountable for the contribution of A2 to our market." 

A2 sank 11 percent to $9.04, leading the market lower. The milk marketing firm has slumped 26 percent since mid-September when new chief executive Jayne Hrdlicka disclosed an unexpected sale of shares. A2's been under pressure as a growth-orientated stock than other more defensive companies on the prospect of higher US interest rates. 

Rickey Ward, head of NZ equities at JBWere, said there's been a re-rating of growth stocks that underscored today's decline. Still, the NZX50 remains up 3.9 percent for the year-to-date, outperforming almost every other major index across Asia

"A short-term trader has to be prepared to be whiplashed every now and then. But a long-term investor shouldn’t be too concerned at the current time," Ward said. 

Synlait Milk, a major supplier for A2, dropped 5.9 percent to $9.10, while Pushpay Holdings - another growth stock - dropped 5.1 percent to $3.54. 

The sell-off wasn't contained to growth-focused companies. Rate-sensitive stocks were also weaker with Genesis Energy down 3.2 percent to $2.40 and Contact Energy declining 2.9 percent to $5.63. Retirement stocks fell, with Ryman Healthcare down 4.3 percent to $12.55 and Metlifecare falling 3.2 percent to $6.07. 

Williams said falls like this were also opportunities to buy. Nikko is over-weight in its holding of Fletcher Building ahead of the construction firm's annual meeting and sale of the Formica business. Those upcoming events may have limited Fletcher's decline to 0.6 percent to $6.18. 

Even exporters - which would typically benefit as higher US rates weigh on the kiwi dollar - were caught. Fisher & Paykel Healthcare decreased 5 percent to $13.90 and Scales Corp dropped 4.3 percent to $4.64. 

Chorus declined 2.5 percent to $4.71. The network operator reported record fibre connections in the September quarter, which overtook copper ADSL as the company's biggest connection-type. 

Outside the benchmark index, QEX Logistics fell 1.3 percent to $1.50 in its first day on the main board after migrating from the soon-to-be-disestablished NXT market. 

Companies to gain included the tightly-held Til Logistics, up 0.6 percent to $1.58, and Tilt Renewables, which is under a takeover offer, gaining 0.4 percent to $2.29. 

PGG Wrightson fell 4.8 percent to 59 cents. After the close of trading the rural services firm said June 2019 operating earnings will be about $70 million. 

Auckland International Airport's latest six-year bond started trading on the NZX today at an unchanged yield of 3.51 percent. Auckland Airport's shares fell 4.8 percent to $6.82. 


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