Following the steep declines in international markets, attention turned to the New Zealand Stock Exchange this morning.

Early trading saw the local market drop 2 per cent this morning, before bouncing back slightly to a 1.5 per cent overall drop.

While this result is far from catastrophic, it's clear the New Zealand market will not come out of the market plunge unscathed.

NZ Herald business editor at large Liam Dann compared the impact in the local market to 'blood letting' rather than a bloodbath, pointing out the decline wasn't as severe as had been elsewhere.


"It was inevitable that we would see some fallout," Dann said.

While local trading was closed over Waitangi Day, analysts predicted that Kiwisaver accounts would be rocked by the drop.

Dann said there would be some moves in Kiwisaver accounts, but said this shouldn't cause too much alarm.

"It shouldn't mean too much in the big picture just yet, but it does mean we're in for more volatility," he said.

"If you're someone who's checking every day, it might be a bit more unnerving."

Dann also pointed out that Wall Street had bounced back overnight, closing up 2 per cent.

"What we're seeing is a huge amount of fluctuation as markets get used to the idea that interest rates are going higher. They've known about this for months and years, but when it finally starts to happen, markets don't always behave in an orderly fashion, unfortunately."

There have been concerns that the plunge could snowball into a crash, but Dann said it was difficult to tell at this stage.


"We can never really say whether it's going to crash or not. We know that higher rates will dampen the market, but to put it into perspective, we've been in these situations before. In 2016, there were similarly sized falls when they thought the US fed was going to raise rates and the markets came right again."

Dann said the wait is now on to see if the US Federal reserve does follow through with a raise in interest rates.

"At some point, we have to go back to a normal world of higher interest rates. We've been living for almost 10 years in this sort of artificial low-interest rate environment because that was the cure for the global financial crisis," he said.

"Well, we're through that now, and the global economy is in pretty good shape, so things have to go back to normal and markets are just going to have to wear it."

Given that the move to higher interest rates is set to run on for the next year, Dann anticipates that the current volatility and uncertainty is likely to persist in coming months.

"We're going to see this battle between optimists and pessimists play out over the next year. The optimists have been winning for a number of years, but it probably isn't a bad thing to see a dose of reality in the markets and see those values come down a bit so that valuations can be more aligned to actual corporate earnings."