Why is NZX50 Lagging Behind Asia While BHP Tops ASX?

The S&P/NZX 50 index in New Zealand saw a modest rise, driven largely by gains in key stocks like Infratil and Meridian Energy, despite lagging behind other Asian markets. As gold prices surged past the US$5,000 mark, influencing mining stocks, various local businesses reported mixed earnings and trading activity, especially amid ongoing geopolitical tensions affecting commodity markets.

Last updated: 28 October 2023 (BST)

What’s happening now

As of the latest trading session, the S&P/NZX 50 index has increased by 50.14 points, or 0.4%, closing at 13,510.88. This performance is notable amid a backdrop of fluctuating gold prices and mixed trading results from major companies. The index's performance contrasts sharply with the Australian S&P/ASX 200, which reached a three-month high thanks to a surge in mining stocks. In New Zealand, while gains were noted in companies like Infratil and Meridian Energy, the market overall has struggled to keep pace with its Australian counterpart.

Key takeaways

• The S&P/NZX 50 index rose 0.4%, with a notable contribution from Infratil and Meridian Energy.
• Gold prices surpassed US$5,000 an ounce, boosting mining stocks in Australia and impacting New Zealand markets.
• Michael Hill International reported strong earnings growth, maintaining margins despite regional challenges.

Timeline: how we got here

In recent weeks leading up to the current trading session, several key events have influenced market dynamics:

• Early October 2023: Gold prices began a significant rally amid rising geopolitical tensions.
• Mid-October 2023: The S&P/ASX 200 index in Australia reached new highs, prompting interest in mining stocks.
• 27 October 2023: Michael Hill International announced an expected 12% increase in first-half earnings.
• 28 October 2023: The S&P/NZX 50 index closed up, buoyed by key local stocks.

What’s new vs what’s known

New today/this week

The S&P/NZX 50 index’s rise of 0.4% marks a significant improvement, particularly with Infratil and Meridian Energy leading the way. Additionally, the rise in gold prices to over US$5,000 an ounce has sparked renewed interest in mining stocks, affecting both New Zealand and Australian indices.

What was already established

Prior to this week, analysts had noted a steady increase in gold prices driven by geopolitical concerns and economic uncertainties. Michael Hill International's earnings upgrades had been anticipated due to previous sales performance, while the broader market dynamics had presented a mixed picture for New Zealand stocks.

Impact for the UK

Consumers and households

For UK consumers, particularly those investing in international markets, the rise in gold prices may signal inflationary pressures. As gold is often viewed as a hedge against inflation, UK investors may need to consider their exposure to commodities in their portfolios.

Businesses and jobs

New Zealand's market movements, particularly in the mining sector, could attract interest from UK investors looking for growth opportunities. Additionally, businesses involved in the supply chain for mining operations may find new partnerships or expansion opportunities through these trends.

Policy and regulation

While the immediate implications of these trends may not directly influence UK policy, they could lead to broader discussions on investment regulations and strategies as markets react to international commodity prices and geopolitical stability.

Numbers that matter

• The S&P/NZX 50 index rose by 50.14 points to 13,510.88.
• Gold futures reached US$5,069 an ounce, although they dipped slightly later.
• Turnover on the NZX was reported at £119.9 million, with Fisher & Paykel Healthcare accounting for £15.8 million.
• Infratil's stock increased by 3.2% to £11.15.
• Michael Hill International's shares surged by 12% to £46.5 cents amid positive earnings forecasts.

Definitions and jargon buster

• S&P/NZX 50: A stock market index that represents the performance of the top 50 companies listed on the New Zealand Stock Exchange.
• ASX: The Australian Securities Exchange, the primary stock exchange in Australia.
• Gold futures: Contracts to buy or sell gold at a predetermined price at a specific time in the future.

How to think about the next steps

Near term (0–4 weeks)

Investors should monitor the impact of Australian inflation figures expected next week, as this could influence market sentiment across the Tasman and potentially affect New Zealand's market as well.

Medium term (1–6 months)

As gold prices are expected to remain volatile, investors in precious metals and related sectors should prepare for fluctuations. Additionally, the performance of Michael Hill International and other local companies will be critical indicators of market health.

Signals to watch

• Gold price fluctuations, particularly if they breach or hold key resistance levels.
• Performance reports from major companies, especially those involved in mining and retail.
• Australian economic indicators, particularly inflation and interest rates.

Practical guidance

Do

• Stay informed about global economic indicators that may affect commodity prices.
• Consider diversifying investments to hedge against potential market volatility.
• Monitor earnings reports from companies within your investment portfolio.

Don’t

• Ignore the implications of geopolitical events on market stability.
• Overexpose yourself to any single asset class, especially in uncertain times.
• Neglect to review investment strategies in light of changing market conditions.

Checklist

• Review your investment portfolio for exposure to precious metals.
• Stay updated on the financial health of companies you are invested in.
• Assess your risk tolerance regarding market volatility.
• Check the economic calendar for upcoming reports that could impact your investments.
• Consider consulting with a financial advisor for tailored investment advice.

Risks, caveats, and uncertainties

While gold prices have recently surged, the market remains susceptible to fluctuations based on geopolitical tensions and economic policies. Investors should be cautious and consider potential risks associated with overexposure to commodities. Additionally, the performance of companies like Michael Hill International may vary based on regional market conditions, which can change rapidly.

Bottom line

The New Zealand market has shown resilience amidst fluctuating global conditions, with notable contributions from key companies. However, investors should remain vigilant and adaptable to ongoing changes, particularly in response to international market trends and domestic economic indicators.

FAQs

What factors are driving the rise in gold prices?

The rise in gold prices is primarily driven by geopolitical tensions and economic uncertainty, prompting investors to seek safer assets.

How did Michael Hill International perform recently?

Michael Hill International reported an expected 12% increase in first-half earnings, demonstrating strong sales growth across all regions.

What is the significance of the S&P/NZX 50 index's performance?

The performance of the S&P/NZX 50 index reflects the health of the New Zealand economy and provides insights into investor sentiment regarding local businesses.