From a lockdown-inspired fall, shares recover on the NZX after the Reserve Bank call to lift its asset purchase fund to $100 billion

Sharemarket recovers some early losses

The New Zealand sharemarket suffered its biggest fall in two months yesterday in the opening minutes of trading after the government’s decision to reimpose a Level 3 lockdown on Auckland, while the rest of the country moved to Level 2. The move was in response to the first cases of Covid-19 community transmission occurring in more than 100 days.

The NZX50 fell 2.5 percent at the open but recovered almost half its losses by the close to end the day down 1.3 percent at 11,492.

Tourism stocks were particularly hard hit with Tourism Holdings shares falling 7.4 percent to $1.75. The campervan rental operator said no vehicle pickups would be available at its Auckland sites. Air New Zealand shares closed down 3.6 percent at $1.32, while Auckland International Airport shares, which had been down as much as 5 percent at the open, recovered most losses to end the day down just 0.5% at $6.29.

In the accommodation sector, Millennium & Copthorne Hotels announced the temporary closure of its Copthorne Hotel in Auckland but other sites — including managed isolation facilities — would remain open. Its shares closed flat at $1.78. SkyCity shares fell 3.6 percent to close at $2.43.

As expected, retail stocks also ended the day weaker, with Kathmandu closing down 2.6 percent at $1.14, Briscoes fell 3.8 percent to $3.27 while the Warehouse Group closed barely changed at $2.01.

Retirement villages were also affected by the renewed lockdown measures, given the impact on vulnerable and elderly residents. Arvida Group was hardest hit, closing down 5.7 percent at $1.50, while shares in Ryman Healthcare and Summerset Holdings also lost ground, falling 3.1 and 1.8 percent respectively.

Construction company Downer was one of the few stocks to rise yesterday gaining 0.2 percent to $4.19, after announcing it will acquire the remaining 12 percent of shares in facilities services firm Spotless it doesn’t already own.

Westpac NZ shares reversed course following a better than expected annual result from rival Commonwealth Bank in Australia. Despite being down as much as 3 percent at the open, the shares closed up 3.3 percent at $19.75.

Reserve Bank MPS saves the day

By a fortunate twist of fate, the timing of the Reserve Bank’s scheduled Monetary Policy Statement yesterday helped to cushion a nervous sharemarket. Governor Adrian Orr’s soothing message that the central bank stood ready to do more if necessary was just the tonic investors wanted to hear.

As expected, the Reserve Bank kept the official cash rate at a record low 0.25 percent but expanded its large-scale asset purchase programme (LSAP) to $100 billion. Orr reiterated that negative interest rates and foreign asset purchases remain an option, adding that the committee also agreed “a package of additional monetary instruments must remain in active preparation.” He said the deployment of such tools would depend on the outlook for inflation and employment.

The kiwi dollar weakened after the release. It was at 65.48 US cents shortly afterwards, from 65.63 cents.

In March, the central bank announced its 12-month LSAP programme allowing it to purchase central and local government debt. The amount was initially set at $30 billion, later expanded to $60 billion and now stands at $100 billion, with every possibility it will be expanded even further by the end of the year.

It noted both the domestic and international situation remained “highly uncertain.”

While New Zealand had contained the spread of covid-19 locally – allowing a relaxation of social restrictions and a recovery in economic activity – “any significant change in the global and domestic economic outlook remains dependent on the containment of the virus, which is highly uncertain, as evidenced today by the return to social restrictions in New Zealand,” it said.

ASB Bank annual profit falls

ASB Bank’s annual net profit declined 25 percent from last year following a tripling of charges for bad debts to $306 million. The move reflected the impact the bank expects from the coronavirus fallout. ASB’s net profit of $958 million for the year ended June 30 compared with $1.27 billion the previous year.

ASB chief executive Vittoria Shortt said while New Zealand had some encouraging signs of business confidence rebuilding and spending levels rebounding, the change of alert levels announced by the Government on Tuesday evening demonstrated there is no room for complacency and economic recovery is likely to be bumpy.

“We are anticipating difficult times ahead for businesses and people in the industries most impacted by Covid-19, in particular tourism, international education and retail,” she said.

Net interest income eased by $2 million to $2.14 billion and other income was down 10.3 percent at $607 million. Shortt said the low interest rate environment and the bank’s increase in liquid assets meant ASB’s net interest margin shrank to 2.11 percent, down 12 basis points from a year earlier.

ASB’s advances to customers rose 3 percent in the latest year to $90 billion while deposits were up 12 percent at $74 billion.

Sky Television exits live sports production

Sky Network Television has sold its subsidiary Outside Broadcasting Limited to global production conglomerate NEP for an undisclosed sum, bringing to an end its long-standing association with the broadcast production of live sporting events.

The transaction is timely for Sky, allowing the broadcaster to avoid spending around $50 million to purchase new broadcast equipment in the next five years which it said was needed to “stay at the forefront of broadcast technology”.

The sale will also allow Sky to focus on developing more creative content and is part of an ongoing process of transitioning away from satellite television and into online streaming.

After acquiring Spark’s entertainment streaming platform Lightbox in February and combining it with its own product Neon, the company is hoping to boost its offering of steaming services to compete against the behemoth that Netflix has become.

Outside Broadcasting Limited, including most staff and assets, will be wrapped into NEP New Zealand which will become Sky’s technical production partner in New Zealand for the next 10- years. However, Sky said it would retain its sports production team with NEP New Zealand to continue delivering live sport broadcasts utilising NEP’s equipment.

Sky shares closed down 2.1 percent at 13.7 cents and have fallen 80 percent since August last year.

UK records its worst quarterly fall in GDP

UK economic output plummeted 20.4 percent in the second quarter of 2020, the worst quarterly slump on record, pushing the country into the deepest recession of any major global economy.

The crash in GDP in the April-June period is the worst since quarterly records began in 1955 and follows a 2.2 percent contraction in the first quarter. Industries most exposed to government lockdown measures to contain the coronavirus pandemic — services, production and construction — saw record drops.

“Today’s figures confirm that hard times are here,” UK Chancellor Rishi Sunak said in a statement. “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months, many more will also go.”

Compared with the end of 2019, UK economic output fell by a cumulative 22.1% in the first six months of 2020, a worse outcome than Germany, France and Italy, and double the 10.6% fall recorded in the United States, the Office for National Statistics said.

The UK economy is heavily reliant on services and household spending, both of which posted record declines in the second quarter, as consumers who were holed up at home spent less money and saved more. In addition, millions of workers were furloughed, and many have now been laid off.

Tesla set to split its shares

Tesla Inc. is set to follow Apple’s lead, splitting its richly valued shares in a 5-for-1 exchange, a move designed to make the stock less expensive for individual investors after the company became the world’s most valuable automaker.

Each shareholder will receive a dividend of four additional shares of common stock for each one they own, the electric-car maker said in a statement. The shares, which have more than quadrupled since March to close above US$1,600 last month, rose 7 percent before the start of regular trading yesterday.

The split aims to take advantage of and support Tesla’s recent surge, which has pushed its market capitalisation to more than US$256 billion, exceeding the value of Toyota Motor Corp. and Ford Motor Co. combined. The massive rally for the shares has priced them out of reach for some smaller retail investors just as the EV industry is capturing their imagination.

Apple announced a 4-for-1 stock split after the close on July 30 and retail traders have piled in, betting on further gains.

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

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