SHAREMARKET Wild gyrations but downhill

Press, 18 February 1989, Page 21

SHAREMARKET Wild gyrations but downhill

By

ADRIAN BROKKING

The New Zealand sharemarket gyrated wildly this week, in attempts to adjust quickly to the, often conflicting, bits of information. But the downward movements were larger and also more frequent, as indeed the bad news was morefrequent and more disturbing. The market was down on Monday, up on Tuesday, down on Wednesday, up early on Thursday but down at the close, and up a little again yesterday afternoon. The Barclays index of industrial shares closed the week at 2020.28, a fall of 3.7 per cent.

The swings in the N.Z.S.E. gross index were less pronounced, and its fall for the week was also smaller — 2.9 per cent. The reason for this is, of course, the fact that most of the “hot” trading was in a few of the top bluechips, the ones that weigh more heavily in the Barclays index.

Weakness on overseas markets, especially Australia, signalled on Monday the end of the previous three weeks golden weather. At home, a firming New Zealand dollar and rising interest rates worked in tandem to put the damper on the New Zealand sharemarket. These three trends provided the background to the market for most of the week.

In fact, during the five trading days, interest rates for call money jumped from 11.65% to 14.25%, and those of benchmark 5 year Government Stock firmed from 12.9 to 13.14%,

while the New Zealand dollar rose on the cross rate with the Australian dollar from 69c to 73c. Monday’s sharp falls acted as a catalyst for a recovery on Tuesday as overseas investors rediscovered their confidence. On Wednesday the whole of the market slumped in empathy with the sharp fall in Chase Corporation as its shareholders, unnerved by the group’s downgrading in the credit ratings, dumped their holdings en masse. Millions of shares had to find a new owner, and at one stage the shares were quoted as low as 63c. They recovered a little later in the week, and closed yesterday at • 72c unchanged from the day before but well down on the 107 c close of the previous Friday. On Thursday morning the market appeared to have come to terms with the Chase affair, and was rising quite strongly when rumours of a management shake-up at the Bank of New Zealand and other problems once again gave investors the jitters. This bearish sentiment was accentuated by the news of the blow-out in the Australian trade deficit, which raised fears of increasing inflation over there, with rising interest rates. Australian markets reacted quickly, but the main effect on our sharemarket was the fact that Australian investors stayed away. Yesterday, the market struggled to close slightly higher in the face of the well-known factors: a rising cross rate with Australia and a weaker equities market across the

Tasman. Overseas buyers were largely absent, but local institutions were' actually buying. In a reversal of the usual scenario, New Zealanders actually gave buying support to the Australian market, taking advantage of the better exchange rate. Institutions bought dual-listed stocks as they could be acquired over there at a discount. It makes good sense to enter the Australian stockmarket, especially for those New Zealanders still wary of our own shares. Apart from the obvious benefit of diversification, there are investment opportunities over there. Australia has the highest yields of any major fixedinterest market in the world. Both their shortterm rates and the longerterm bond yields are higher than ours. As the “hot money” chases the high-yielding currencies, the foreign exchange markets are "keying” off short-term interest rates, and Australia is a major focus of world investment, just as New Zealand was some years ago. Throughout 1986, 87 and the first half of 1988 the very high interest rates here were associated with a very strong New Zealand dollar. If the roles are to be reversed, and Australia is to become the world’s highest-yielding currency, we here could become offshore investors, with the extra benefits of currency movements. In contrast, the New Zealand dollar is more likely to fall than to rise.