NZ shares fall as Greek drama triggers region-wide sell-off

Monday 6th July 2015

The New Zealand stock market kicked off a region wide sell off as uncertainty over the future of Greece's financial stability stokes volatility in international markets and prompts investors to seek safe haven assets.

The S&P/NZX 50 Index fell 50.14 points, or 0.9 percent, to 5790,76 in afternoon trading. Inside the index, 33 stocks fell, 12 rose and five were unchanged. Selling on the local bourse was tamer than across Asia-Pacific, with Hong Kong's Hang Seng Index dropping 2.7 percent, Japan's Nikkei 225 Index falling 1.6 percent and Australia's S&P/ASX 200 Index sliding 1.2 percent.

Greece's referendum delivered the left-wing Syriza government a victory, with 61.3 percent of the country voting to reject the bailout offer from their European creditors and its accompanying austerity measures. Greek prime minister Alexis Tsipras said he will return to the negotiating table with creditors irrespective of the result, however most spectators are increasing their bets on a Greek exit from the Eurozone, which would see the country's banks become insolvent and inflation explode with the reintroduction of the drachma.

"It's not certain that it's going to default at this stage, it's still a wild card - that's the key thing, no one knows at this stage quite what's going to happen," said Angus Gluskie, managing director at White Funds Management in Sydney. "Are the Greeks going to attempt to go back to further negotiations? It depends whether the Europeans agree with them. So really nothing has changed."

The Chicago Board Options Exchange's Volatility Index, known as Wall Street's 'fear gauge', spiked to a six month high in the lead-up to the referendum, and was recently at 16.79, higher than the moving average of 14.64 this year.

"People are viewing this as market wide event, a liquidity event, which means it is affecting everything," Gluskie said. "We think it's a situation where no one knows the outcome so all you can do is wait and watch."

The uncertainty around Greece's financial future prompted investors to sell higher risk assets such as equities and the kiwi dollar and favour more liquid, stable currencies such as the US dollar and the yen and the perceived safety of government bonds.

"People dislike a lack of certainty and they get nervous and that's what we're seeing in markets," Gluskie said. "Similar to what we're seeing in the Australian market. Our market sold off in a bit of a knee-jerk reaction at the start of trade, it's been brought back partially so what it's telling you is that people don't like the uncertainty but when they sit there and think through the issues they are concluding nothing much has changed."

Dual-listed stocks weighed on New Zealand's bourse. Kathmandu Holdings, the outdoor goods retailer, led the benchmark index lower in afternoon trading, tumbling 4.1 percent to $1.65. Fletcher Building, the construction and building supplies firm, retreated 1.9 percent to a two and a half year low of $7.92. Trade Me Group, the online auction site, declined 3.4 percent to $3.37. Westpac Banking Corp dropped 3 percent to $35.90. Australia and New Zealand Banking Group fell 2.4 percent to $35.90.

Bonds rallied, with the yield on New Zealand's 10 year government falling 6.5 basis points to 3.575 percent, the lowest level since May 11.

BusinessDesk.co.nz

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