Can the NZX50 Maintain Its Momentum with Mixed Jobs Data?

The S&P/NZX 50 index in New Zealand remained resilient amid a challenging day for global markets, primarily supported by power companies such as Contact Energy and Mercury NZ. Despite a notable selloff in technology stocks due to concerns about artificial intelligence (AI) disrupting the sector, the benchmark index managed to close slightly higher, reflecting a complex interplay of local economic data and international market trends.

Last updated: 12 October 2023 (BST)

What’s happening now

The S&P/NZX 50 index rose by nearly 2 points, closing at 13,423.52, as utility stocks provided essential support. However, the day was marked by widespread declines in technology stocks, largely influenced by a global selloff linked to AI advancements. Notably, local tech firms Gentrack, Vista Group International, and Serko experienced significant losses, mirroring a 15% drop in Xero, an Australian-listed software company. These trends highlight the market's cautious stance towards sectors perceived as vulnerable to technological disruption.

Key takeaways

• The S&P/NZX 50 index rose slightly, supported by utility companies.
• Technology stocks faced a significant downturn, particularly in the wake of advancements in AI.
• New Zealand's unemployment rate unexpectedly increased to 5.4% in the December quarter.

Timeline: how we got here

Here's a brief timeline of significant events leading to the current market situation:

• December 2022: New Zealand's economy shows signs of recovery, leading to employment growth.
• January 2023: Statistics New Zealand reports a rise in job participation, with increasing numbers of individuals seeking work.
• October 2023: The S&P/NZX 50 index closes at 13,423.52, buoyed by utility stocks amidst a global tech selloff.

What’s new vs what’s known

New today/this week

The unexpected rise in New Zealand's unemployment rate to 5.4% has raised questions about the sustainability of the economic recovery. Additionally, the sharp decline in tech stocks, spurred by AI developments, has prompted investors to reassess the potential risks in this sector.

What was already established

Prior to this week, there was a prevailing sense of optimism regarding job growth and economic recovery in New Zealand. However, the tech sector's vulnerabilities have been an ongoing concern, particularly as AI technology evolves.

Impact for the UK

Consumers and households

The fluctuations in New Zealand's stock market may have indirect implications for UK investors with interests in global markets. Economic indicators such as unemployment rates and employment growth can influence investor sentiment, potentially affecting cross-border investments.

Businesses and jobs

For businesses, especially those in the technology sector, the current climate may necessitate a reassessment of growth strategies in light of AI advancements. The selloff could signal a more cautious approach to investing in tech-related ventures.

Policy and regulation

As the economic landscape shifts, UK policymakers may need to consider the implications of technological advancements on employment and economic stability. This could lead to discussions around regulation in the tech sector to mitigate disruption risks.

Numbers that matter

• 5.4% - Unemployment rate in New Zealand for the December quarter, an unexpected increase.
• 171 million - Total turnover across the NZX, highlighting active trading despite market volatility.
• 2.8% - Increase in Contact Energy's stock price, showcasing the strength of utility companies.
• 15% - Decline in Xero's stock price, reflecting the broader tech market's challenges.
• 6.7% - Increase in the Global Dairy Trade price index, indicating stability in dairy prices amid other sector struggles.

Definitions and jargon buster

• S&P/NZX 50: A stock market index that measures the performance of the 50 largest companies listed on the New Zealand Stock Exchange.
• AI: Artificial Intelligence, technology that simulates human intelligence processes.
• Global Dairy Trade (GDT): A platform for international dairy trading, providing price indices and auction results.

How to think about the next steps

Near term (0–4 weeks)

Investors should monitor the performance of technology stocks closely, particularly any developments related to AI. Regulatory changes or advancements in technology could further impact market sentiment.

Medium term (1–6 months)

As the economic recovery unfolds, trends in employment and consumer spending will be crucial to assess. Investors should also track any shifts in government policies impacting the job market and technology sectors.

Signals to watch

• Employment growth figures and participation rates from Statistics New Zealand.
• Stock performance of major tech companies, particularly those exposed to AI disruptions.
• Global market trends that may influence local trading conditions.

Practical guidance

Do

• Stay informed about developments in the tech sector and their potential impact on investments.
• Consider diversifying investments to mitigate risks associated with volatile sectors.
• Monitor global market trends that could affect New Zealand's economic landscape.

Don’t

• Ignore signs of distress in the tech sector; due diligence is essential.
• Overlook the potential impacts of AI on job markets and investment strategies.
• Make hasty investment decisions based solely on short-term market fluctuations.

Checklist

• Review your investment portfolio for exposure to tech stocks.
• Assess the implications of economic indicators on your financial strategies.
• Stay updated on regulatory changes affecting the tech and employment sectors.
• Engage with financial advisors to navigate potential market volatility.

Risks, caveats, and uncertainties

Market conditions remain fluid, and the potential for further declines in the tech sector exists, particularly as AI technologies evolve. While the current economic recovery is promising, uncertainties regarding job growth and participation rates may lead to fluctuations in market confidence. Investors should remain cautious and consider seeking professional advice when navigating these complexities.

Bottom line

The current situation in New Zealand's S&P/NZX 50 index reflects a delicate balance between growth in utility sectors and challenges faced by technology stocks amid evolving AI trends. Investors should carefully consider their strategies in light of these dynamics and prepare for potential changes in the economic landscape.

FAQs

What is the current status of the S&P/NZX 50 index?

The S&P/NZX 50 index closed at 13,423.52, showing slight growth despite broader market declines, largely due to support from utility companies.

How is AI affecting the technology sector?

AI advancements have raised concerns about disruption in the technology sector, leading to significant selloffs in tech stocks as investors reassess risks.

What are the implications of New Zealand's rising unemployment rate?

The increase in the unemployment rate to 5.4% suggests that while job growth is occurring, more individuals are entering the job market, which could affect overall economic stability.