The collapse this week of former market darlings Pumpkin Patch and Wynyard Group has raised concerns amongst market-watchers that a likely correction in the NZX50 could veer into bear territory.
The twin failures - representing a loss of $1 billion in market capitalisation from the companies' respective peaks - comes as an October surprise on the tail of a steady decline in the benchmark NZX50 index over the past two months.
READ MORE: • Brian Gaynor: Why did two companies fail?
Since it's September 7 peak the S&P/NZX50 index is down 8.5 per cent, on the verge of the technical 10 per cent fall required to classify the slide as a correction and raising the possibility a bear market (a 20 per cent fall) may be on the horizon.
Slowly building global interest rate pressures were cited as a key point of concern by three market players - Castlepoint Funds' Stephen Bennie, Craigs Investment Partners' Mark Lister and professional director Rob Campbell - who were all unwilling to say the floor on the local bourse had been reached.
But is a clawed paw knocking on the door?
Bennie said: "A bear market could well have begun. I'm not expecting to see us go above the early September levels again any time soon. And if anything, we have considerable risk to the downside."
Noting the NZX was imbalanced - heavy on interest-rate-linked infrastructure firms and light on the counterweight of growth stocks - Bennie said the tide appeared to have turned in the past two months.
"There seems to have been a sentiment shift. Interest rates starting to tick up. And that would leave our share market dealing with severe turbulence," he said.
Lister, who said he's been advising his clients to sell shares for some months, reckoned while the worst was not over it was not far away. "We are some way from a bear. For me there could be a few more per cent of downside from here as we look to the end of the year."
Campbell, given the calamitous week and a torrid past few months, wasn't willing to make a call either way: "Who knows?"
A bear market could well have begun. I'm not expecting to see us go above the early September levels again any time soon. And if anything, we have considerable risk to the downside.
While Pumpkin Patch and Wynyard had wildly different profiles - a mature brick-and-mortar fashion retailer and a fresh tech startup that never got into gear for growth - their near-simultaneous failure shows the availability of easy finance and capital may be drying up.
Pumpkin Patch's story is one of a traditional retailing struggling beneath the weight of past mistakes, namely a crippling debt load incurred from ill-fated expansion overseas.
By late 2014 the Herald noted the company was trading on the whim of its banker ANZ to operate as a going concern. The company's share price then verged on break-up level, with market capitalisation perilously close to net tangible assets.
The company then owed ANZ $66 million and renegotiated covenants saw a series of milestones aimed at trimming this to $25m by the start of 2017. While early marks were hit, the company's accounts to June 30 show progress was reversed over the past year with poor sales burning cash and ballooning inventories.
ANZs exposure over this 12-month period actually widened, from $41m to $46m.
Do not assume anything is cheap because it used to be more expensive.
Asked about their position on Pumpkin Patch, a spokesperson for ANZ said they did not comment on their clients.
Wynyard by comparison was a technology startup relying on specialised software for law enforcement and intelligence agencies. After launching onto the NZX in mid-2013, and topping up its warchest in early 2014, it failed to meet revenue expectations and burned through its available cash.
Lister characterised the two failures as "company-specific" - noting many companies on the NZX were reporting record profits - but said the end came after investors in both firms lost patience when expecting profitability.
"Sometimes they get sick of waiting," he said.
Lister said in some ways both companies were "a victim of disruption" - with Pumpkin Patch steamrolled by online retailers and Wynyard not making the risky evolution from technology embryo.
Bennie said ANZ had given Pumpkin Patch too much rope, but explained he understood the motivation. "ANZ had effectively become the owner of that business, and taking a loss is not a pleasant experience, it's human nature to avoid it but sometimes tough decisions have to be made," he said.
Turning to Wynyard, he said its collapse had injected a dose of hard realism into growth start-ups. "They're going to find it harder from here on. There's no beating around the bush now: Until they've made a profit, they're going to be considered, quite rightly, very risky investments where you can make a great return or end up losing all your dough."
Campbell sounded a final note of caution for bargain-hunters and urges investors to be wary of high leveraging. "Do not assume anything is cheap because it used to be more expensive," he said.