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NZ stocks drop on global rout, unearthing some bargains

Tuesday 16th September 2008

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New Zealand stocks fell, following a rout in stocks across the globe in the wake of the Lehman Brothers bankruptcy and concern about ailing world economic growth.

The benchmark NZX 50 Index fell 2.8% to 3229.824 and was earlier down about 3% to the lowest level this month. All but four securities in the NZX 50 fell today, with Telecom dropping to a 15-year low of NZ$2.81.

The decline has spread across Asia today. The MSCI Asia Pacific Index fell 3% to 112.11, the lowest level in almost three years. Japan's Nikkei 225 Stock Average dropped 4.7%. Shares tumbled on Wall Street after Lehman Brothers failed to find a buyer and Merrill Lynch agreed to be acquired by Bank of America for US$50 billion in a hastily devised rescue.

Citigroup, the biggest US bank, fell 15% yesterday, while Goldman Sachs dropped 12% and Morgan Stanley declined 14%.

"This is the sign of a bear market, driven entirely by sentiment" said Rickey Ward, who helps manage NZ$450 million of shares at Tyndall Investment Management. "Prices are incredibly volatile and there's limited liquidity. People are having to cross spreads to buy or sell."

The 10 biggest companies on the New Zealand exchange all declined today. About NZ$1.03 billion was wiped off the value of the NZX 50, which had a market capitalisation of about NZ$37.9 billion today.

The decline has created "some great opportunities" for investors taking more than a 24-hour view, Ward said. He cited New Zealand Oil & Gas, which has sunk 4.6% to NZ$1.45 today.

Investors selling the stock weren't taking into account that the company is sitting on as much as NZ$280 million of cash and has an investment in Pike River Coal that would yield another NZ$150 million. Added to that, its oil field assets in Kupe and Tui were being under-valued, implying an oil price of around US$48 a barrel, he said.

Ward also cited Fisher & Paykel Healthcare, down 2.9% to NZ$3.07 today. "It's a good company in a sector that's growing 15% to 20% a year."

Plus SMS Holdings, whose CRE8 subsidiary provides mobile entertainment and connectivity services, was the biggest decliner today, dropping 32% on the NZAX market after announcing the resignation of chief executive Chris Tiensch and chief financial officer Les Coates.

New Zealand's economy probably contracted in the first three quarters of the year, according to the Treasury. The department is predicting growth will revive in the final quarter.

The central bank has cut interest rates twice in the past three months, from 8.25% to 7.5%, to boost an economy suffering from weak consumer demand and a housing slump.

The global economic rout may slow New Zealand's recovery, especially in the wake of the crisis among US finance companies, Finance Minister Michael Cullen said today.

"This further round of the financial fallout will tend to lower GDP forecasts for the world over the next year or two," Cullen said in Wellington.

By Jonathan Underhill

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