Sharemarket falls after Reserve Bank hikes benchmark interest rate

Wednesday, 6 October 2021

The sharemarket fell after the Reserve Bank raised the benchmark interest rate, signalling the days of super-cheap money are coming to an end.

The benchmark S&P/NZX 50 Index dropped 33.55 points, or 0.25 per cent, to 13,166.44 on Wednesday.

The central bank raised the official cash rate by 25 basis points to 0.5 per cent, as expected, ending an 18-month spell at the record-low rate of 0.25 per cent.

“There was initial relief that the headline decision was in line with expectations, but then also the reality that interest rates are only going to go one way from here over time,” said Fat Prophets head of research Greg Smith.

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The days of ultra-low interest rates, which have been a tailwind to much of the corporate sector, are coming to an end.

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“Ultra-low interest rates have been a tailwind to much of the corporate sector, despite what we are experiencing during the pandemic,” he said. “Borrowing costs are low so companies can invest, companies can expand, and it facilitates corporate activity as well.”

Higher interest rates also weigh on stock valuations as analysts anticipate the impact on future company earnings, he said.

Specialty milk marketer The a2 Milk Company dropped 6.3 per cent to $6.38, extending the stock’s loss over the past year to 59 per cent.

Australian law firm Slater and Gordon has alleged misleading or deceptive conduct by a2 Milk, and a breach of continuous disclosure rules with four downgrades, two in late 2020 and two this year.

The claim filed in the Supreme Court of Victoria was on behalf of investors who bought a2 Milk shares on the Australian and New Zealand stock exchanges between August 19, 2020, and May 9, 2021.

A2 Milk said it will “vigorously defend” the class action.

The milk marketing company has suffered setbacks during Covid-19 as border closures and trade disruptions meant fewer tourists and international students shipped its products to China, known as the daigou trade.

Smith said there had been a huge loss of shareholder value in a2 Milk over the last 14 months.

“It’s natural when a blue chip stock loses as much value as a2 has in a relatively short space of time for shareholders to go pointing the finger at management,” Smith said. “It’s probably no surprise for questions to be asked, and it’s probably only a surprise that they weren’t asked a bit sooner about why the company didn’t have an inkling of this.

“Time will tell whether there is any substance to these allegations.”

Travel stocks were mixed as investors mulled when international borders may open to travellers again.

Auckland Airport fell 0.7 per cent to $8.075. Air New Zealand advanced 1.2 per cent to $1.715. Tourism Holdings slipped 0.4 per cent to $2.75.

“We don’t even know when Auckland is going to get out of level 3, let alone when the departure gates are all going to be open for international travel, so it’s not surprising that sentiment continues to be a bit mixed,” Smith said.

Asian shares slipped, shrugging off a rally on Wall Street led by technology companies and banks that erased most of the losses from the previous day's sell-off.

On Wall Street on Tuesday, the S&P 500 rose 1.1 per cent to 4,345.72.

– With AP