Wild week, but shares are starting to find their feet

Global markets reacted to a downgrade of United States credit, mounting sovereign debt in the US and Europe and fears of slowing economic growth. Photo / Kenny Rodger

The NZX-50 closed up 0.25 per cent last night, only 1.9 per cent below where it opened on Monday, ending a volatile week on the local exchange.

The benchmark index shed more than 8 per cent between Friday and Tuesday, as global markets reacted to a downgrade of United States credit, mounting sovereign debt in the US and Europe and fears of slowing economic growth.

But from Wednesday, the NZX-50 gained ground, at times shrugging off steep falls on overseas exchanges. It is still 4.7 per cent off Thursday's close.

"The inherent volatility meant you were unsure of which way things were going from day to day," said James Smalley, a client adviser at Christchurch sharebrokers Hamilton Hindin Greene. "But you've got to have a thick skin and be immune to that volatility as much as you can be."

A mere rumour about a potential downgrade of France's AAA credit rating sent investors across Europe and the United States back into panic mode on Thursday, reversing the previous day's rise on US and European exchanges.

Positive financial reporting from Steel & Tube Holdings and Mainfreight helped the local market to shrug off the overseas jitters, with the NZX-50 closing up 1.8 per cent on Thursday night while markets across Asia and Australia finished the day in negative territory.

Some mildly positive data on US employment may have helped to spark the rally seen on US and European markets yesterday.

In London, the FTSE 100 index finished up 3.11 per cent, while on Wall St the Dow Jones industrial average ended the day up 3.95 per cent.

Madrid-based IG Markets analyst Soledad Pellon Bannatyne said it was too early to say whether markets had turned a corner, as there appeared to be "no concrete reason" for yesterday's recovery on European and US markets. "We consider it to be a technical rebound," she said.

Looking to next week, Smalley said reporting from NZX-listed firms such as Telecom and Fletcher Building would help investors to focus on the fundamentals of local companies, rather than volatility in overseas markets.

"We might start marching to the beat of our own drum to a certain extent next week," he said.

Smalley said it would be great if the market volatility died down, but it appeared likely to stay for some time.

"The underlying issues - these debt worries in the US and Europe - are going to be with us for years to come," he said. "It's a question of how these countries are going to manage their way out of it."

Market commentator Arthur Lim said the steep falls in stocks, followed by equally extreme rebounds, meant it was the most volatile week in global equity markets he could remember.

"The market is very, very skittish, with players reacting to good or bad news quite severely," he said. "There is a high state of nervousness."

The uncertainty caused the New Zealand dollar to bounce around wildly against its US counterpart, the greenback, over the course of the week.

The kiwi fell from last week's post-float record of US88.42c to US79.59c on Tuesday, climbing above US84c midweek before losing ground again.

Yesterday, the dollar rose from a low of US81.29 in the early hours of the morning to US83.29 at 7.20am, before falling back to US82.09c at 5pm. Westpac senior markets strategist said on Thursday that the kiwi was likely to fall back to around US78c over the next two weeks.

Australia's ASX200 closed up 0.77 per cent last night.

In Asia, Hong Kong's Hang Seng rebounded and was up 0.96 per cent during trading last night.

Japan's Nikkei 225 stock average was down 0.20 per cent. Additional reporting: Agencies