New Zealand shares fell after the US Federal Reserve's pessimistic economic outlook threw cold water on markets that had priced in a V-shaped recovery.
The S&P/NZX 50 Index dropped 105.59 points, or 0.9 per cent, to 11,154.93. Within the index, 37 stocks fell, 11 rose, and two were unchanged. Turnover was $185 million.
Share markets across Asia-Pacific reacted negatively to a downbeat economic outlook from the Fed, predicting the US economy would shrink 6.5 per cent and unemployment would near 10 per cent this year, contradicting investors who had been betting on a swift recovery from the pandemic.
Michael McCarthy, an analyst at CMC Markets, said there had been some expectation that economic projections may be improved following positive May jobs data in the US.
"The fact that they didn't revise upwards really skittled sentiment," he said.
"There was a lot of optimism about a potential V-shaped recovery and we've had some cold water in the face of those expectations."
The shock to investor sentiment broke an eight-day run higher in Australia, where the S&P/ASX 200 Index dropped 2.9 per cent in its biggest fall since April. Hong Kong's Hang Seng fell 1 per cent and Japan's Topix was down 1.9 per cent.
Air New Zealand led the local market lower, plunging 10.8 per cent to $1.66. McCarthy said the vanishing optimism prompted speculative investors who had piled into the stock to exit just as quickly.
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Advertise with NZME.Kathmandu Holdings fell 9.2 per cent to $1.19, and is now down 2.5 per cent this week despite strong gains on Monday.
Westpac Banking Corp dropped 7.5 per cent to $19.80 and Australia & New Zealand Banking Group declined 5.6 per cent to $20.92.
McCarthy said a steady low-interest rate environment made it harder for banks to increase margins and were always vulnerable to a downturn.
"Banks are leveraged to the economic cycle, when we see growth concerns kicking in they often feel the weight of it," he said.
Gentrack Group fell 7.2 per cent to $1.67. The stock is tipped to be relegated out of the NZX 50 in the index's rebalancing tomorrow. Napier Port, which is expected to replace Gentrack, fell 2.2 per cent to $3.54.
Companies tied to the economic recovery were also under pressure.
SkyCity Entertainment Group slipped 4.6 per cent to $2.91, Sky Network Television dropped 3.2 per cent to 18 cents and Auckland International Airport fell 2.3 per cent to $6.75.
Tourism Holdings dropped 2.1 per cent to $2.34. The rental campervan operator said it was seeing domestic demand gain momentum in New Zealand, Australia, and the United States.
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Advertise with NZME.Fisher & Paykel Healthcare posted the day's biggest gain, rising 1.9 per cent to $28.85. The kiwi dollar dropped on the gloomier economic outlook today, which is a boon for F&P which generates half of its revenue in US dollars.
Meridian Energy rose 0.8 per cent to $4.89, while Contact Energy fell 1.1 per cent to $6.30.
Outside the benchmark index, medicinal cannabis research firm Cannasouth rose 2 per cent to 52 cents after it said it was considering a move into animal products as part of its diversification into value-added markets for its cannabinoid products.
