WorldCom scandal ruffles NZ currency market

Corporate America's latest accounting scandal sent a shiver through New Zealand's currency market this morning, with the New Zealand dollar opening more than a cent lower.

However, the sharemarket opened firm and there was no sign of panic.

Long-distance carrier WorldCom Inc revealed last night it had inflated financial results by US$3.8 billion ($7.8 billion).

The scandal rivals last year's collapse of energy trader Enron, and could derail WorldCom's efforts to secure US$5 billion in new financing and force it into bankruptcy.

WorldCom owns Auckland-based internet Service Provider Voyager and 10-per cent of the Southern Cross Cable.

The news saw the kiwi dollar plummet to US48.63c in early trade -- more than a cent lower than yesterday's US49.79c close, having traded in a whippy US49.90c to US48.30c range overnight.

The sharemarket was up 6.63 points, or 2071.61, by 10am.

Basil Payn, chief currency dealer at Westpac Bank, said the kiwi and aussie fell victim to a serious bout of profit-taking as investors pared back their positions in light of the scandal.

"The markets are a little bit unnerved in the States over the WorldCom thing," Mr Payn said.

"It's not a negative vote for aussie and kiwi -- it's more a case of investors wanting to (buy kiwi) but they're just waiting to see how the credit issues (related to WorldCom) unfold over the next few days in the States."

In the United States Wall Street first pushed the sell button as the scandal emerged, but then stocks recovered almost all their lost ground late in the afternoon as investors bought a slew of beaten-down shares.

JB Were broker Murray Rutherford said the New Zealand sharemarket appeared to be following that lead.

"The market here is very calm and controlled and trading nicely firm. There is certainly no panic."

He did not expect any longer-term fallout even if WorldCom collapsed, as the New Zealand market tended to be slightly removed from such fluctuations.

"There are a lot of good value companies in New Zealand that have no exposure to the telecommunications sector and being a little remote people can view New Zealand as a little bit of safe haven."

However, he added that confidence in equities was something that transcended all borders.

Telecom is understood to have little or no exposure to WorldCom debt. Telecom and SingTel own the rest of the Southern Cross cable and have options to buy out WorldCom's stake. Brokers said they might get the stake cheaply in a fire sale.

Telecom was 5 cents higher at $5.03 by 10am.

Staff at Voyager, WorldCom's other local asset, were unable to be contacted this morning.

New Stock Exchange chief executive Mark Weldon this morning put a positive spin on the debacle, saying it had sparked a renewed pledge to clean up the market.

"Corporate bodies are actually being extremely vigilant in stamping out possible infractions," he told National Radio.

US lawmakers yesterday cried shame at market regulators and promised quick congressional action as they learned of the WorldCom situation.

The ever-lengthening parade of corporate scandals has had a negative impact on US stock markets, consumer confidence and the economy.

New Zealand investors with diversified portfolios were likely to be shielded from most of the WorldCom fallout, Mr Weldon said.

"If you are invested in the market and you are well diversified, the performance of one stock does not have a terribly material effect on your overall returns," he said.

"The trick is really to make sure you don't put all of your money on one horse, particularly a flashy one that you don't know much about."

Mr Weldon said the NZSE was looking at putting some additional "teeth" into its listing rules to make sure it complied with international best practice in terms of accounting procedures.

"Markets are organic and they continue to improve. I'm sure they will be stronger going forward," he said.

He said the US accounting standards differed to New Zealand's.

"We are reasonably well situated in terms of preventing some of these instances."

- NZPA