Coronavirus rocks market: NZ stocks drop as Wall St heads towards worst week since GFC

New Zealand share prices shifted 2 per cent lower in response to another sharp fall on Wall Street as concerns about the spread of coronavirus continued to mount.

In the opening minutes of trade, the NZX-50 was down 209 points at 11,205, in contrast to the Dow Jones Index's greater 4.4 per cent decline.

US stocks are now on track for their worst week since the Global Financial Crisis.

Most major sharemarkets elsewhere in the world have also gone sharply in reverse.

The Dow finished 1,190 points down at 25,766.

The US benchmark index has fallen by more than 10 per cent since its most recent peak, thereby meeting the technical defininition of a correction.

This week, the US Center for Disease Control and Prevention said it expected cases in the United States to rise.

The virus has now infected more than 82,000 people worldwide.

Most of the cases are in China.

Long term impact?

International ratings agency Standard & Poor's reaffirmed New Zealand's ratings and said it doesn't expect the fallout from covid-19 to substantially weigh on the country's economy long-term growth prospects.

S&P rates New Zealand 'AA/A-1+' on a foreign currency basis and at 'AA+/A-1+' in local currency terms and said its outlook is positive.

The outlook "reflects our view of the country's declining exposure to risks related to its high external debt," it said.

The reducing risks give it "more policy space to respond to potential macroeconomic and financial sector shocks," it said.

However, "we don't expect the slowing China economy from the recent outbreak of the new coronavirus to substantially weigh on New Zealand's long-term growth prospects," it said.

According to S&P, while Chinese tourism and student numbers are likely to weaken in the first quarter of 2020 with the New Zealand government's travel restrictions, "we expect it to pick up again once the restrictions are eased."

The government recently extended a travel ban to and from China for another eight days and yesterday Universities New Zealand international programmes committee chair Grant Guilford said time is running out for New Zealand universities to get a special exemption to allow about 6,000 students currently stranded in China to start the first semester here.

Sources close to the sector suggest the up-front cost to the sector will be in the region of $700 million to $800 million in lost fees, living costs, and travel and tourism across the sector.

Finance Minister Grant Robertson told a BusinessDesk event in Auckland on Wednesday evening that the virus is now likely to impact the economy through 2020 rather than being limited to the March quarter.

Economists have lowered their growth forecasts and markets now see a chance the central bank could cut interest rates as early as next month as covid-19 and a drought take their toll. "The possibility of an official cash rate cut in March should not be dismissed," said Westpac New Zealand chief economist Dominick Stephens. Market pricing indicates a 33 percent chance of a cut in March, but that's fully priced in by June.

According to Robertson today, however, "the Crown accounts are in a strong position to weather any economic uncertainty as a result of coronavirus, with the books in surplus and expenses close to forecast."

In the seven months to January, the government's operating balance before gains and losses was a surplus of $1.4 billion, about $100 million lower than forecast. Core Crown tax revenue at $51.3 billion was about 0.7 per cent below forecast due to lower than expected company tax take and GST. Net core Crown debt of $59.7 billion was 19.5 per cent of GDP.

S&P said it expects net general government debt to remain relatively low compared with peers, but increase to about 22 per cent of GDP in the year ending June, 2022 from 17.7 per cent of GDP in fiscal 2018. "This is about 2 percentage points higher than our previous expectations, reflecting wider fiscal deficits," it said.

The ratings agency noted an increase in borrowing by Crown entities off the government's balance sheet, such as Kainga Ora and Housing New Zealand, but said the contingencies and guarantees backing those entities were still relatively low and didn't affect the rating.

- Additional reporting from BusinessDesk