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Business as usual for most as air escapes the e-bubble

By Nick Stride

Thursday 20th April 2000

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As markets braked and bounced in this week's Nasdaq-driven turbulence it was business as usual for much of the corporate world - and for Reserve Bank governor Don Brash.

Buying into the consensus view the technology sector gyrations would have little effect on New Zealand's economic growth, Dr Brash yesterday lifted the official cash rate 0.25% points to 6%.

There was little reaction from the money and currency markets. "The move was already priced into short-term interest rates," WestpacTrust economist Nick Tuffley said.

Local shares have followed the US markets but the moves have been far less wild. In four straight days of falls the NZSE40 index lost 181 points, or 8.4%, before staging a 21-point rally on Tuesday.

Christchurch retailer EstarOnline canned its float and the Force-Ihug merger came adrift but eVentures is pushing ahead with a $30 million share sale and Air New Zealand still plans a $285 million rights issue.

Telecom has yet to decide whether to float off high-tech parts of its business.

While technology-related shares were hit hardest, "old economy" shares have not gone unscathed. Over the five trading days to Tuesday Sky TV lost 17%, Carter Holt Harvey 12%, Telecom 9.6% and Fletcher Energy 2%.

The emerging consensus is global market volatility signals more than just a blowing off of froth from technology shares. Pointers such as the OECD leading indicator suggest the engine room of global economic growth is shifting from the US to Japan and Europe.

"Risk-aversion has risen not only for the Nasdaq but for [US] equity markets as a whole," Merrill Lynch chief investment strategist David Bowers said this week.

But the US dollar had held up well. "If there was a real rise in risk-aversion in the US the dollar would come under pressure, given the size of the current account deficit and the size of the private sector financial deficit."

Merrill Lynch's local head of research, Mark Bensemann, said he was "a little bit" concerned about the world economy. But the New Zealand market was undervalued and should not be hard-hit by a slowdown overseas, he said.

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