14 May 2019

NZX falls over a percent as US-China trade war escalates

1:26 pm on 14 May 2019

The local sharemarket has followed global markets and taken a hammering this morning as the US-China trade dispute escalated.

New Zealand's sharemarket has immediately fallen two percent after opening after the Waitangi Day closure. Global markets have been left reeling in the biggest one-day fall on Wall Street since 2011.

The New Zealand stock exchange followed overseas markets, falling more than a percent off the back of the latest news in the US-China trade war. Photo: RNZ / Rebekah Parsons-King

The Chinese government has raised tariffs on $US60 billion dollars worth of American goods in retaliation to the US increasing tariffs on 250 billion dollars worth of Chinese imports at the weekend.

Stock markets around the world tumbled in reaction amid fears the worsening dispute will weaken world economic growth.

The benchmark top-50 sharemarket index has fallen about 110 points so far today, 1.1 percent, after hitting a record high yesterday.

Among the bigger falls locally were A2-Milk, Synlait Milk, and Auckland International Airport all of which have significant Chinese related business.

Sharemarkets around the world were rattled by the ratcheting up of tit-for-tat measures, as investors started to lose faith that a trade deal can be reached and are realigning their investments to cope with a more prolonged battle.

US markets were down by as much as 3.4 percent, and European and Asian markets had also fallen sharply yesterday.

"You're seeing see a move toward more defensive companies and companies that can still deliver cash flow and dividends," said Quincy Krosby, chief market strategist at Prudential Financial.

Investors are said to be concerned a collapse of US-China trade discussions could hurt the earnings outlook, because tariffs could lift corporate costs and lower profit margins, while continued uncertainty surrounding a trade deal will hinder the ability of companies to plan or make investments.

However, there was some optimism of an eventual trade agreement, and the current market ructions will only be temporary.

"I don't think the market is doing anything other than taking a breather," said Jamie Cox of the Harris Financial Group.

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