21 Jan 2016

Global stock markets falls not long term - analyst

1:04 pm on 21 January 2016

Global share market falls overnight are not part of a long-term bear market, an analyst says, and New Zealand is distanced from many of the underlying problems.

Stock markets worldwide have tumbled with investors unsettled by the continuing slide in oil prices and fears about the impact on global growth.

Businessmen walk past the stock indicator flashing Tokyo stock prices during its afternoon session in Tokyo on January 20, 2016.

Falls in Europe and the US came after Asian stocks closed sharply lower. Japan shares fell to their lowest level since October 2014. Photo: AFP

In trading on Wall Street, the Dow Jones was at one stage down almost 600 points, but trimmed losses to 502.56 points, or just over 3 percent.

Europe's main markets were sharply down, led by the FTSE 100, which sank 3.46 percent. Germany's Dax and the Cac 40 in Paris ended 2.82 percent and 3.45 percent down respectively.

The falls in Europe and the US came after Asian stocks closed sharply lower yesterday. Markets in Dubai closed at a 28-month low, while in Japan shares fell to their lowest level since October 2014.

The New Zealand sharemarket's NZX50 index opened almost 1 percent lower following the overnight global market tumble before regaining some of the losses.

Brian Gaynor, fund manager and executive director of Milford Asset Management, said the New Zealand market could soften today but overall had been "holding up quite well".

"The problems in the world are related to oil prices falling and problems in emerging countries and New Zealand is far removed from that at the moment," he told Nine to Noon.

"Share markets tend to go up and down - that's the characteristics of them. Everyone would be invested in the share market if they kept on going up all the time.

World stock markets had had "a very good run" over the past few years and had been up well over 100 percent.

Though many markets are now in so-called bear market territory - a fall of 20 percent or more from their most recent peak - Mr Gaynor is not expecting the trend to be extended.

"This is a correction - we don't think its the beginning of what we call a bear market - a negative market - going on for a long period of time.

"You might say at times we need these corrections, they can be healthy. It definitely is a correction but our view is that it's not permanent - its not entering a negative market over the next say one, two, three years."

Oil prices

The downwards move came after oil prices continued to slide, with the price of international benchmark Brent Crude at $US28.08 a barrel, around a 12-year low.

The oil price has plummeted 75 percent since mid-2014 as oversupply, mainly due to US shale oil flooding the market, has driven down the cost of the commodity.

At the same time, demand has fallen because of a slowdown in economic growth in China and Europe.

The world's energy watchdog warned on Tuesday that the market could "drown in oversupply". The International Energy Agency, which advises countries on energy policy, said it expected the global glut to last until at least late 2016.

Mr Gaynor said falling oil prices were due to overproduction, including from new oil reserves in the United States, and at the same time the Organization of the Petroleum Exporting Countries (OPEC) was not cutting back in line with demand.

"Saudi [Arabia] and other countries like that ... borrowed quite a lot over recent years and they got repayment committments so they're reluctant to cut their oil production which is what we normally see in this environment.

Laura Lambie, senior investment director at Investec Wealth Investment told the BBC there had been a short-term change in sentiment.

"Investors have decided the world is a riskier place," she said.

Concerns over growth in China, the prospect of rising US interest rates and the possibility that low oil prices might force some oil companies out of business are the main concerns for investors, said Ms Lambie.

- RNZ / BBC / Reuters