US shock pushes sharemarket down

The New Zealand sharemarket dropped more than 1 per cent yesterday as markets around the world fell on news of United States President Barack Obama's plans to limit risk-taking at banks.

The NZX-50 was down 1.08 per cent to 3190.701 points at 5pm - the biggest one-day fall since the Dubai shock in late November.

Forsyth Barr investment adviser Grant Collie said the combination of the US news and China's GDP figures been the main driver.

"Really what led the market down on Thursday night - and New Zealand and Australia are really following leads from the US - was Barack Obama's proposal of imposing further restrictions on banking investment."

That flowed down into financial stocks and that flowed down to the rest of the markets.

"On top of that China's GDP came up and fuelled rhetoric about more curbs on lending to curb inflation."

Collie said China was far more important now that it was five years ago and any news there had an impact on other markets, particularly Australia where mining companies BHP Billiton and Rio Tinto featured strongly on the stock exchange.

But market commentators said it could have been worse with New Zealand faring better than other Asia Pacific markets.

Australia's benchmark S&P/ASX200 fell by 1.6 per cent while Japan's Nikkei was down by 3 per cent to a four-week low.

"We have held up pretty well," commentator Arthur Lim said.

Collie said New Zealand tended not to go up as much when markets were doing well, but on the positive side, when things were doing badly New Zealand's markets did not fall as much.

The NZX-50 began the year strongly but since January 11 it has fallen every day apart from one, knocking more 100 points off the benchmark.

Of the last 14 market days nine have been in the red.

Lim said it was too early to tell if the past fortnight would set the scene for the rest of the year.

"The market is very much split on whether or not this year is going to be fine. There are no expectations we will see the kind of spectacular returns that equity markets put on last year. But I don't think anyone thinks this is going to be a negative year."

Lim said the global economic picture was brightening up but the uncertainty was based more on how Governments around the world would handle growth while keeping inflation under check.

"We are going to be in for a volatile time yet. But ultimately the global economic picture is so much better today than this time last year.

"We are seeing month-by-month improvement but the irony is that is what is causing some of the volatility out there."

Lim said taking liquidity out of the market was one way to control inflation but there was a fear that if this occurred the world could go back into recession.

"The market is nervous enough that any hint of a possibility of that results in a sell-off."

But Collie said that whether the negative start set the tone for the rest of the year would depend on how the New Zealand results season - which kicks off next month - panned out.

"Markets had a pretty good run last year and now we are seeing a bit of sobering news tempering expectations, but the proof will be in the pudding when companies report on their outlook."