Investors should sell New Zealand stocks as slowing economic growth, a higher kiwi dollar and rising raw material costs crimp company earnings, says Jason Wong a strategist at First NZ Capital.
"We see the easy call at the moment as shifting money out of New Zealand equities and putting itelsewhere, either overseas, taking advantage of the historically high New Zealand dollar, or into cash," Wong said yesterday.
The benchmark NZSX 50 stock index closed at its lowest level so far this year. The index has dropped 1.8 per cent so far in 2005 after the central bank raised interest rates to a four-year high of 6.75 per cent, prompting concern slower economic growth will curb profits.
"We remain cautious about stocks whose earnings are at risk through high raw material prices, the strong New Zealand dollar and the downturn in economic growth," said Wong. "We are still in the early stages of the economic downturn and there is still scope for disappointment on earnings."
The NZSX 50 fell 1 per cent to 3010.79 at the close yesterday. Its decline this year is more than twice that of Australia's benchmark S&P/ASX 200 index.
Reports since the central bank raised the official cash rate last month have shown the economy grew 0.4 per cent in the fourth quarter, a third of the pace the bank had predicted and the slowest pace since the second quarter of 2003.
Against the US currency, the kiwi dollar gained 12 per cent the past year and reached a 20-year high US74.66c on March 17.
Stocks named by First NZ as likely to be hurt by slower economic growth include Nuplex Industries, Feltex Carpets, Fisher & Paykel Appliances, Sanford, Air New Zealand and Carter Holt Harvey.
Feltex Carpets fell 6.3 per cent to a record 75 cents. The company is the worst performer on the benchmark this year after it this month reported a third- quarter loss and said full-year earnings wouldn't meet expectations.
Fisher & Paykel fell 0.7 per cent to $2.90, extending its drop this year to 33 per cent, making it the second-worst performer on the benchmark.
