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NZ shares drop 1.2% as Brexit impact reverberates across markets

Monday 27th June 2016

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New Zealand shares extended their decline as the UK's surprise vote to leave the European Union stoked fears of a flow-on impact on commodity prices, credit markets and global economic growth.

The S&P/NZX 50 Index fell 80 points, or 1.2 percent, to 6,587.77 at 10:40 am, 40 minutes after opening. The local bourse shed 2.3 percent on Friday, falling throughout the day as votes were counted and reported. Stock markets on both sides of the Atlantic sank on Friday as investors were blindsided by the British vote to leave, with the Standard & Poor’s 500 Index retreated 3.6 percent on Wall Street, while Europe’s Stoxx 600 Index plunged 7 percent.

"Looking at the futures, the Australian market looks like it's going to open flat, there might be some bounce-back in Asian markets but there are still a lot of unknowns," said Craig Stent, director and research analyst at Harbour Asset Management. "The market's been looking for a reason to sell off for a period of time, and this has given them one. The New Zealand market's been very strong year-to-date so you may see some continuation of that retreat. It's uncertainty and markets don't like uncertainty. 

The local market has gained 5.4 percent this year and reached an all-time peak of 7,039.42 on May 31. Today's fall takes it back to trading levels last seen in mid-March. 

The Chicago Board Options Exchange's Volatility Index, known as Wall Street's 'fear gauge' jumped 49 percent to its highest level since February as uncertainty reigned through the global markets, and Harbour's Stent says that uncertainty isn't going away anytime soon. 

"Brussels want to make a strong statement to other countries in the EU - if you're going to leave, it's going to be a messy divorce. The British pound has weakened against most currencies and that's been a bit of a relief valve. Broader economic impacts are still to be worked through, and it's going to take a couple of years or longer," Stent said. 

Amid the heightened volatility, local newspaper publisher and radio station owner NZME will list on the NZX All Index today, having demerged from its parent, APN News & Media, ahead of a potential merger with rival Fairfax Media's New Zealand operations.

The shares will begin trading on a deferred settlement basis at midday, while the demerger will be implemented on Wednesday. Trading on a normal settlement basis will start on July 1.

BusinessDesk.co.nz

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