Is the NZX50 Dipping Due to ‘Sell America’ Sentiment in Asia?

The New Zealand stock market has experienced significant declines, largely influenced by external pressures, particularly from the United States. The S&P/NZX 50 index fell 1.2% as market sentiment soured due to US President Donald Trump's controversial campaign for Greenland, which has unsettled investors globally. This downturn is notable as it marks one of the worst performances for the exchange across Asia, with many top companies, including major players like Auckland International Airport and Infratil, experiencing substantial losses.

Last updated: 27 October 2023 (BST)

What’s happening now

The NZX50 index has sharply declined, closing down 156.76 points to 15,417.17. This decline was reflected across the board, with 40 of the top 50 companies experiencing losses. The market was characterised by a lack of optimism, as many investors appear to be seeking safer assets amid international uncertainties, particularly relating to Trump's geopolitical ambitions. Despite the overall downturn, the local junior mining sector showed some resilience, buoyed by rising gold prices that reached new highs.

Key takeaways

• The NZX50 index dropped 1.2%, marking one of Asia's worst-performing stock markets.
• 40 out of the top 50 companies saw declines, with significant losses in major sectors.
• Gold prices surged, offering some protection to junior mining stocks amid the broader downturn.

Timeline: how we got here

Recent events have unfolded as follows:

• 1st November 2023: Prime Minister Christopher Luxon announces the general election date of 7th November.
• 27th October 2023: NZX50 index experiences a significant drop, influenced by external market pressures.
• Late October 2023: Wall Street's downturn spills over into Asian markets, including New Zealand.

What’s new vs what’s known

New today/this week

Today’s trading session saw the NZX50 index decline sharply, primarily influenced by the broader sentiment from Wall Street. The announcement of the general election date by Prime Minister Luxon adds to the political backdrop but does not appear to have impacted investor confidence positively.

What was already established

Prior to today, concerns over international trade relations and geopolitical tensions had already contributed to market uncertainty. The volatility in US markets had been noted, with investors increasingly turning to gold and other defensive assets.

Impact for the UK

Consumers and households

For UK consumers, the consequences of New Zealand's market performance may be indirect but still significant. A declining market impacts international trade relationships, potentially affecting prices for imported goods and commodities like dairy and minerals, which are crucial in the global supply chain.

Businesses and jobs

Businesses with ties to New Zealand may need to reassess their strategies in light of these market movements. Companies operating in sectors like mining or agriculture may experience fluctuations in demand or pricing, influencing hiring and investment decisions.

Policy and regulation

As the New Zealand government prepares for its upcoming election, policy changes could emerge that might further affect the economic landscape. UK businesses operating in New Zealand should stay informed about any potential regulatory changes that could arise from the new government.

Numbers that matter

• NZX50 closed at 15,417.17, down 156.76 points (1.2% decline).
• Turnover across the main board was $146.7 million, with Ebos Group accounting for $41.1 million.
• Gold prices reached new highs of US$4,844 per ounce, aiding junior miners.

Definitions and jargon buster

• NZX50: The benchmark index for the New Zealand stock market, comprising the top 50 companies listed on the exchange.
• Turnover: The total value of shares traded during a specific period.
• Defensive stocks: Shares that are expected to provide stable returns regardless of market conditions, often in sectors like utilities and healthcare.

How to think about the next steps

Near term (0–4 weeks)

Investors should monitor global market trends, particularly any developments regarding US trade policies and their impact on global sentiment. Additionally, watch for updates from the Reserve Bank of New Zealand regarding interest rates and economic outlooks.

Medium term (1–6 months)

As the general election approaches, political stability will be crucial. Investors may want to keep an eye on party platforms and potential shifts in economic policy that could arise from the election results.

Signals to watch

• Gold price trends and their impact on mining stocks.
• Changes in the NZD/USD exchange rate.
• Updates on US trade negotiations and their global repercussions.

Practical guidance

Do

• Stay informed about global economic trends and their potential impact on local markets.
• Diversify investments to mitigate risk from volatility in specific sectors.

Don’t

• Don’t panic sell based on short-term market fluctuations.
• Don’t ignore the potential for emerging opportunities in defensive sectors.

Checklist

• Review your investment portfolio for exposure to affected sectors.
• Consider reallocating funds to more stable assets if necessary.
• Monitor news related to the NZX and global economic indicators.

Risks, caveats, and uncertainties

The market's response to external pressures, like geopolitical tensions and trade negotiations, can be unpredictable. Investors should be aware that significant fluctuations may occur based on news developments, and the extent of the impact on the NZX can vary. Caution is advised in the current climate as external factors continue to influence sentiment.

Bottom line

The recent decline in the NZX50 highlights the interconnectedness of global markets. As investors navigate these turbulent waters, a keen awareness of both local and international developments will be crucial. Keeping an eye on gold prices and upcoming political changes will help in making informed decisions.

FAQs

Why did the NZX50 index decline?

The NZX50 index declined primarily due to negative sentiment stemming from Wall Street's downturn, influenced by geopolitical tensions related to US President Trump's campaign for Greenland.

What sectors were most affected by the decline?

Major sectors affected included utilities and transport, with significant losses in companies like Auckland International Airport and Infratil.

How have gold prices impacted the market?

Surging gold prices have offered some support to junior miners, helping them avoid the worst of the market downturn, even as other sectors struggled.