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Market Close: NZ stocks fall on worsening global outlook

Friday 7th November 2008

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New Zealand stocks fell, as the stocks rout extended into the Asia Pacific region amid corporate profit downgrades and prospects for a deteriorating global economy.

Fletcher Building Ltd. led decliners on the NZX 50 Index, sinking 7% to NZ$5.68. Australian rival building supplies company Boral Ltd. dropped 5.5% on the ASX.

The NZX 50 declined 48.48, or 1.7%, to 2791.65, its second daily slide and final session before the election. Telecom Corp. and retailer Kirkcaldie & Stains posted weaker earnings today, while retailer Warehouse Group reported declining sales.

The Dow Jones Industrial Average dropped 4.9% and the S&P 500 Index fell 5% yesterday, as companies including Walt Disney, Blackstone Group and News Corp. posted weaker earnings. In Europe, companies including Adidas posted worse-than-expected profit, helping send the Dow Jones Stoxx 600 Index down 5.6%.

Today in Sydney, the S&P/ASX 200 Index was down 2.5% in late afternoon trading, led by BHP Billiton, Rio Tinto and Woodside Petroleum as metals and crude oil fell. The Nikkei 225 Index fell 3.1% in mid-day trading, with Toyota slumping about 12% after slashing its profit forecast.

The earnings downgrades "confirm expectations of tougher times," said Barry Lindsay, research manager at First NZ Capital. "The market needs good news to travel and it probably won't receive much good news for a while on the earnings front."

Telecom fell 0.4% to NZ$2.26 and earlier touched a record low NZ$2.20 after reporting a 34% slump in first-quarter profit on costs to comply with the government-ordered separation of its business units and higher wages. The stock has tumbled 47% this year, lagging behind the NZX 50's 30% slide.

Warehouse declined 2.7% to NZ$3.90. The discount chain posted a 2.1% drop in first-quarter sales and said trading conditions "have been difficult." Still, managing director Ian Morrice said margins were similar to the year-earlier quarter.

Wellington department store operator Kirkcaldie said annual profit fell 30% as it spent more on promotions while reducing prices to maintain sales in a slumping market. Its stock didn't trade today and was at NZ$2.40 yesterday.
Sales fell 0.7% to NZ$44.6 million.

Pike River Coal and New Zealand Oil & Gas fell, tracking resources companies in the U.S. and Europe as the price of crude oil dropped and raw materials slid on expectations demand will falter. Pike fell 6.5% to NZ$1.15 and NZOG declined 5.2% to NZ$1.29.

Pumpkin Patch, which sell children's clothing in New Zealand, Australia, the U.K. and the U.S., fell 4.8% to NZ$1. The stock has two 'buy' recommendations, two 'outperforms' and three 'holds,' according to Reuters. Sales are forecast to rise in both 2010 and 2011. Clothing chain Hallenstein Glasson Holdings Ltd., which has operations here and in Australia, fell 3.8% to NZ$2.29.

First NZ Capital's Lindsay said he's still upbeat about the stock market's prospects.

"I'm taking the view that we're in the bottoming out process," he said. "The economic gloom is gathering but the market is forward looking. My clients buy on bad days."

He cited Contact Energy and Vector as stocks that probably "are not really going to get slammed."

Contact fell 0.3% to NZ$7.41 today and Vector, which is having price controls imposed on its gas pipeline, fell 2.9% to NZ$1.99 and is down 6% this year. Contact has slipped 10% in 2008.

Figures in the U.S. on Friday may show employers cut jobs again last month. The number of Americans on a benefit role is at the highest since 1983, according to figures yesterday.

Lindsay said there's potential for New Zealand stocks to weaken on Monday if there isn't a clear outcome from the election, which National Party leader John Key is poised to win, according to opinion surveys. Short of an outright victory, his success will depend on negotiations to form a coalition. Stocks may rally on a decisive National victory, Lindsay said.


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