Why NZ sharemarket had biggest jump in single day of trading in 13 years, outside of Covid rally

The NZX50 jumped by 2.68 per cent on Friday.

The New Zealand sharemarket’s benchmark index had a pleasant pick-me-up last Friday, recording one of the biggest single-day rises in its 21-year history.

But investors should expect continued market volatility until the Reserve Bank provides a clear indication of the timing for interest rate cuts.

A perfect storm of MSCI World Large Cap Index changes and the new long-term supply agreements for the Tiwai Point aluminium smelter sent the leading energy stocks into overdrive – pushing the S&P/NZX 50 Index to a gain of 2.68 per cent.

Meridian rose 64c or 10.46 per cent to $6.76, Mercury 38c or 6.03 per cent to $6.68, and Contact 42c or 4.77 per cent to a new high of $9.22. Both Meridian and Mercury had their weightings increased on the MSCI global index, and all three make up 16 per cent of the index’s capitalisation.

Fisher and Paykel Healthcare, which has the biggest influence on the NZX 50 with a 14 per cent weighting, also did its share of heavy lifting, increasing $1 or 3.5 per cent to $29.50.

There were two days in June 2020 when the index bounced back more than 3 per cent from the sharp falls in the early days of the Covid-19 pandemic.

Excluding the unique Covid period, last Friday was the best day since 2011 and the 13th best since the NZX 50 replaced the NZSE 40 in March 2003 as New Zealand’s headline sharemarket index.

But was it a turning point?

Mark Lister, investment director with Craigs Investment Partners, said Friday’s rise was a reminder that it doesn’t take much for the market to react positively.

“The market hasn’t done well over the best part of three years – it’s been mainly flat - but it showed it can still perform under certain conditions. The market still has its challenges and is awaiting cuts to the official cash rate.

“With inflation still a little high, at best the cuts are still some months away and that’s an end-of-year story,” Lister said.

Shane Solly, portfolio manager of Harbour Asset Management, said the market still has to get through the next three to six months of the slowing economy.

“The pace of company downgrades has slowed and maybe we are at the low tide of earnings forecasts. But the market will still be choppy while the recovery in earnings washes through and there will still be stocks impacted by the slowdown in consumer spending,” Solly said.

The recent market volatility has created a wider divergence in the performance of stocks.

Utilities software firm Gentrack has risen 133 per cent over the past 12 months, while retailer KMD Brands has fallen 62 per cent. Cinema management software firm Vista Group has gained 58.7 per cent and Tourism Holdings has declined 49.46 per cent.

Other leading gainers on the NZX 50 are a2 Milk up 34 per cent, Westpac Bank 27 per cent, ANZ Bank 23.68 per cent, Fisher and Paykel Healthcare 23.12 per cent, Meridian 21.26 per cent, and Contact 16 per cent.

Other decliners are Ryman Healthcare down 41.76 per cent, The Warehouse 38.24 per cent, Fletcher Building 37.17 per cent, Heartland Group 36.25 per cent, Oceania Healthcare 31.25 per cent and Air New Zealand 30.77 per cent.

“There’s certainly a bigger spread between the winners and losers than we’ve seen for some time. Some parts of the economy and the market are doing okay and some aren’t,” Solly said.