KEY POINTS:
Sharp one-day losses on the local sharemarket yesterday, amid a global equities sell-off related to US sub-prime mortgage woes, are likely to be short lived, say commentators.
But a sustained soft patch remains a risk, says BNZ economist Stephen Toplis.
Following the example set on Wall St, the NZX-50 fell almost 2 per cent yesterday to 4246, its lowest point in two weeks. The fall takes the index's total gains for the year to date to a modest 4.8 per cent.
Top stock Telecom closed 2.5 per cent lower at $4.70 while Fletcher Building lost 3.2 per cent to close at $12.56.
"The really difficult thing at this stage is to know whether what we're seeing over the last couple of days is a correction ... or are we seeing the start of something a little nastier which is going to continue with us for some time," said Toplis. "At this stage we can only ask the question and don't really have the answer."
First NZ Capital research manager Barry Lindsay downplayed the significance of yesterday's move.
"I feel the issues are somewhat US-centric, and our market shouldn't be suffering because of issues largely specific to the US sub-prime mortgage market," said Lindsay.
But he acknowledged the issues had implications for the US economy as a whole, and "if things go wrong in the US, they spread to other parts of the world".
However, he said corrections like yesterday's were not unusual, pointing to the market jitters earlier this year related to a sharp sell-off on theChinese equity market.
"We lived to see another day and that will be the case with today's sell-off."
Selling on the NZX yesterday was not aggressive in terms of volumes and appeared to be mostly by institutions rather than private clients.
"I'm not fazed by what's happened and I don't think our clients are either."
However, BNZ's Toplis believes that even if yesterday's sell-off proves to be a short-lived phenomenon, weakness in global and local markets is increasingly likely over the next couple of years.
"There have been serious concerns that we've been in a period where excess global liquidity seems to have been artificially driving markets to levels that were unsustainable based on earnings."
That applied to all markets, including housing.
"Clearly we now have central banks, including our own, on the warpath. At some stage the tightening that's been going on was going to have an impact, and the correction we're seeing now is quite possibly part of that process."
