With just two trading sessions remaining until the end of the month, the NZ sharemarket is on track to record its third successive losing month as buyers continue to remain on the sidelines and signs emerge of an economy facing increasingly ominous headwinds.

The NZX50 closed out the week down a further 2.1 percent bringing its loss for the month to 4.7 percent and 10 percent since August 1 when the current selloff began.

And as was noted last week, the NZ market has now officially entered bear market territory with a fall of 21 percent since its January 2021 top.

NZ sharemarket on verge of bear market
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The local market’s downward trend has been broadly in line with other global equity markets. In the US the benchmark S&P500 index has also fallen by 10 percent since 1 August, and Australia’s ASX200 index has fallen 8 percent over the same period.

Though trading volumes have been relatively light in recent weeks indicating the selldown has been reasonably orderly and is more a case of buyers remaining reluctant to enter the market as opposed to a wholesale selloff, the question remains how much further does it have to go?

Last year saw the NZX50 fall by 22 percent between September 2021 and June 2022 as stocks sold off in response to rising interest rates, though at the time central banks were hiking rates aggressively. This time the concern is more about how long interest rates will have to remain at elevated levels as well as the impact rising bond yields are having by increasing borrowing costs.

As always, all roads lead back to the bond market, and the Federal Reserve.

“The stock market isn’t ready to rally until bond yields are sharply lower, which probably won’t happen until we see inflation a lot closer to central bank’s target range,” one Wall Street analyst pointed out recently.

As a result, that inflation target will likely remain out of reach until economic growth pulls back from its current pace which is taking much longer than economists had initially forecast.

However, recent price action in stocks suggests investors are beginning to price in the likelihood that 2024 looks increasingly likely to be a year where consumers buckle and finally ‘throw in the towel’.

Since August 1 when the current selloff began, several listed companies have seen their share prices fall sharply including:

  • Restaurant Brands down 42 percent
  • Fletcher Building down 21 percent
  • a2 Milk down 20 percent
  • Mainfreight down 17 percent
  • Ryman Healthcare down 17 percent
  • Fisher & Paykel Healthcare down 16 percent
  • SkyCity Entertainment down 16 percent
  • Port of Tauranga down 15 percent
  • Auckland International Airport down 10 percent

The continued slump in Mainfreight’s share price is particularly noteworthy given transport stocks tend to be a leading indicator as to the health of the broader economy as well as the company being one of the few locally listed stocks with a truly global footprint. Since peaking at almost $100 in September ’21, Mainfreight shares have since fallen more than 40 percent.

Similarly, shares in Freightways also fell to a three-year low last week after CEO Mark Troughear told shareholders at the company’s AGM on Thursday that the current economic environment was “worse than we were expecting”, with customers trading at about 5 percent below last year. That, he said, presented a risk that earnings would be at or below last year’s level.

Despite its Australian express package business Allied Express ramping up revenues by more than a quarter, Troughear said Freightway’s consolidated net profit after tax fell 4.7 percent to $18.4m from $19.3m for the prior year.

Increasing labour costs also continued to affect the business. With a trans-Tasman team of 6,000, staffing was easily the company’s biggest expenses, Troughear said.

“Labour at the lower end has probably gone up about 10 percent year-on-year with freight sorters and truck drivers.”

Freightways shares closed on Friday at $7.60, down 8 percent for the week.

Trading updates from SkyCity Entertainment, Fletcher Building and Port of Tauranga at their AGMs followed a similar theme highlighting the increasingly challenging climate businesses are having to navigate as the New Zealand economy continues to soften.

Port operator warns of lower profits as trade volumes slump

Port of Tauranga surprised the market on Friday after telling investors its net profit for the 2024 financial year could be down by as much as 20 percent after the company said container volumes had plummeted by a similar amount in recent months.

Chief executive Leonard Sampson told shareholders that based on the port’s first quarter results, it was expecting full-year earnings to be in the range of $95 million to $107 million. In August, Port of Tauranga reported a net profit of $117.1m for the 12 months ended June 30, with the group’s revenue also jumping 12.2 percent to $420.9m.

Sampson said global economic volatility had caused total trade to edge down 9 percent in the three months to September 30 compared with the same period a year earlier. Coastal shipping changes, an early end to the kiwifruit season and a slow start to the dairy export season had all contributed to the decline.

“Softening international commodity pricing and demand has had an impact on some key exports as shippers have hit pause to instead focus on building inventory or look for alternative export markets,” Sampson said.

The port’s total container volumes for the three-month period also fell 21 percent to 250,000 twenty-foot equivalent units (TEU), and Sampson cited the main impact being from reduced transhipment volumes falling by 31 percent as a result of changes in vessel rotations.

In a telling indicator of weakening domestic demand, Sampson noted imports had also fallen sharply since June.

“Containerised imports are down 23 percent on the previous year, reflecting weaker domestic consumption and significant increases in rail costs,” he said, though he remained optimistic of a “boost” in the run-up to Christmas.

Port of Tauranga’s share price closed on Friday at $5.15, down 7 percent for the week and just 25c above the low they reached in the March 2020 Covid selloff.

Construction boss says housing market beginning to stabilise

Fletcher Building CEO Ross Taylor was a little more upbeat addressing shareholders at the company’s AGM in Auckland on Friday saying the company was seeing signs of green shots in the housing market.

Taylor said underlying profit for the first half of the financial year was expected to be in line with last year’s report, despite the softer construction market.

In the 2023 financial year, Fletcher Building delivered strong underlying earnings of $798m, but net earnings dropped to $235m, partly because of provisions relating to the fire that occurred at Auckland’s International Convention Centre.

Though the Australian division was trading well and the New Zealand housing market was beginning to turn around, Taylor noted that increased competition meant profit in the New Zealand materials and distribution business was lagging behind expectations.

“For our New Zealand materials and distribution businesses, the infrastructure and commercial sectors remain robust, while volumes in the residential sector are around 5 percent softer than our prior guidance,” he said.

Sales in the residential and development division were tracking well, averaging 20 to 25 per week so far this year, Taylor said.

“House prices have stabilised and are starting to trend up slightly.”

Taylor also briefly addressed the ongoing allegations of serious plumbing issues in Western Australia which one building firm has blamed on faulty manufacturing by Fletcher subsidiary Iplex.

The news saw Fletcher’s share price slide more than 10 percent earlier in the month.

“We will work with the industry and regulators to help develop an effective solution,” Taylor said.

Market reaction to the trading update was relatively subdued with Fletcher Building shares closing on Friday up just 1c at $4.36, though they remain near a three-year low.

US auto workers gain huge pay rise following prolonged strike action

General Motors and Stellantis NV (Chrysler) are understood to have agreed to provide 25 percent wage increases to United Auto Workers (UAW) members, matching the same offer by Ford, according to reports over the weekend from Bloomberg.

The agreement will conclude a historic six-week strike in which the union held the industry to account for sacrifices made during the global financial crisis in 2008/09.

The GM proposal is also understood to include generous cost-of-living increases over the more-than-four-year contract.

The UAW strike began in mid-September and grew to include more than 45,000 workers from GM, Ford and Stellantis at eight assembly plants and 38 parts-distribution facilities in 22 states. The walkouts have cost the auto industry billions of dollars, with Ford’s deal the first to be concluded, ramping up pressure on its Detroit rivals to finish their negotiations and allow production to resume.

As a result of the increased pay offer, the lowest-paid temporary workers are likely to see pay rises of more than 150 percent over the period. The union also won the right to strike over future Ford plant closures.

US President Joe Biden said he applauded the tentative deal.

“[It] provides a record raise to auto workers who have sacrificed so much to ensure our iconic Big Three companies can still lead the world in quality and innovation,” he said.

The strike, which started on September 15, is the first in the UAW’s 88-year history to target all three carmakers at once.

The union opened talks seeking a roughly 40 percent rise in pay over four years. Other demands included an end to practices that give newer workers lower pay and fewer benefits.

Bitcoin shines as markets swoon

Bitcoin is back in the news after topping US$35,000 for the first time since May 2022.

In fact, the high profile cryptocurrency gained more than 20 percent last week and is up over 100 percent year-to-date making it by far the most successful asset class this year.

Bitcoin has gained renewed attention in recent weeks as investor excitement grew at the prospect of being able to buy bitcoin funds that trade on established stock exchanges rather than having to deal with less regulated and often disreputable exchanges, as was highlighted with the high-profile collapse of FTX last year.

The latest price spike came after a BlackRock exchange-traded fund for bitcoin appeared on a list controlled by the Depository Trust and Clearing Cor, a Nasdaq-operated clearing house for stocks and ETFs, according to Reuters.

BlackRock applied in June to register a bitcoin spot ETF, which is pending approval. The company is the largest provider of ETFs in the world, managing trillions of dollars of assets. A BlackRock bitcoin ETF would give the cryptocurrency a new sense of legitimacy and prominence as well as making investment far less risky than it is at present.

Though the listing in the Depository Trust and Clearing Cor does not mean that the fund has actually been launched or that it will inevitably happen, the news has sparked renewed interest in Bitcoin and other related cryptocurrencies such as Ether.

Other high-profile investment companies such as Greyscale have also applied for approval to launch similar bitcoin ETFs in the future.

Coming up this week

Employment Indicators (Sept) – Stats NZ

Building Consents (Sept) – Stats NZ

Labour Market Data (Sept Qtr) – RBNZ

Spark AGM

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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