Catalysed by the robust governance and well-timed anti-coronavirus measures of its 40th Prime Minister, Jacinda Kate Laurell Ardern, New Zealand has started to open up its economy in a staged manner. The sovereign island country moved into Level 2 on 14 May 2020 with COVID-19 cases reducing and days when no new confirmed cases were filed. New Zealand reopened most businesses, sooner than many other countries around the world, to get its economy moving again with a new normal requiring to break out of the bubble.
In this backdrop, let us cast an eye on the performance of the country’s stock market.
New Zealand Stock Market Performance
On 27 May 2020, S&P/NZX 50 ended the session in green, inching upward by 1.22% to 11,049 while S&P/NZX 20 moved up by 1.06% to 7,436. S&P/NZX 10 too experienced an increase of 1.11% and settled at 11,542.
The improving performance of S&P/NZX 50, which was marked at an 11-week high on 27 May 2020, can be attributed to various factors including reviving business activities.
The market rebounded after remaining under pressure from 12 May to 22 May 2020, post considering various factors. Let us discuss few of them.
Other than performance of an individual company (micro factors), outside influences (macro factors) affect stocks and the market as a whole. Macro factors pertain to natural or man-made disasters, economics, politics, market psychology, to tag a few. Of late, the novel coronavirus had deep ramifications on global health and international financial markets, causing stock market anomalies.
China Drops Economic Growth Target
The main driver of the pressure on New Zealand’s stock market was believed to be China dropping its annual growth target for the first time since it began publishing GDP goals in 1990. This sent out signs that the world’s second biggest economy is grappling due to the invisible enemy, causing China not to set a specific target for economic growth this year. Moreover, in the last quarter, GDP of the country dwindled for the first time in decades, by 6.8%, with consumption, job creation targets, exports, and investments heftily impacted due to production standstill.
Given the great virus uncertainty (Global Virus Crisis, or GVC as some experts are deeming it), China expects to experience instances that might result in challenges for predicting its development.
So, how does this impact New Zealand? Well, to begin with, China is one of New Zealand’s largest trading partners and their terms of trade have increased significantly over the years, with China contributing to higher export prices as well as lower import prices. Secondly, New Zealand is indirectly exposed to the global economy via China’s wide connections, particularly in the Asia-Pacific region. Moreover, investing is not limited to boundaries (just like the virus!). Therefore, a significant update pertaining to China’s view on the global economy is bound to make domestic and international investors nervous.
Fear of Slow Global Recovery Looms
Slow economic recovery warnings have been coming from prominent institutions like the US Federal Reserve that have been sporadically prompting a global retreat from equity markets. Experts opine that there is a lot that the economies have to navigate through to get back to where they were in a pre-COVID-19 era. This lingering thought process is bound to make investors skip a heartbeat when the market opens every day, and many as the day unfolds.
To provide a cushion to the economy, the New Zealand Government recently unleashed a budget with NZ$ 50 billion to soften, but not prevent, the looming recession. PM Ardern also stated that “there is more to do”. The country has “won a few battles” with cases decreasing and normalcy returning but has “not won the war.”
Fears of Second Wave of COVID-19 infections
While the world awaits success from pre-clinical and clinical trials of COVID-19 vaccine, the fear of second wave of infections has been doing its rounds. The US, China, Germany, and Spain are few countries that have experienced a surge in confirmed numbers after they decided to open up their respective economies, done in a staged way.
Expert warnings that easing lockdowns/ premature lifting of lockdowns could cause a second wave of virus infections, led to a global selloff in mid-May with S&P/NZX 50 Index slipping down by over 30 basis points.
The Ray of Hope
One should remember that global financial institutions have been through the Global Financial Crisis (GFC) of 2008 and their financial position has been much stronger, as we battle the GVC with the past decade spent on building up capital.
Moreover, New Zealanders have made over the 6 and a half weeks of alert levels 4 and 3 with great vigour to welcome level 2, ahead of many economies and opening the economy vigilantly and in planned phases. The country has the potential to undertake up to 12k tests a day, with testing rates amongst the highest in the world per capita, ahead of Australia, UK, South Korea, Germany, and Singapore, to name a few.
Besides this, the globally accoladed Government has announced fiscal measures amounting to a total of NZ$ 62.1 billion, which accounts for over 20% of the country’s GDP, through FY2023-24. The Government, Central Bank RBNZ, and the New Zealand Bankers Association have also announced several financial measures to support SMEs and homeowners. The RBNZ has kept the OCR at 0.25% and has been providing liquidity in the FX swap market and re-established a temporary US dollar swap line (US$ 30 billion) with the US Federal Reserve as well.
Time will demonstrate if these measures and the ones yet to be launched can help the New Zealand stock exchange to further fetch investor interest from domestic and international platforms. Meanwhile, the economy continues to adhere to rules as it starts to aim for an economic recovery in the coming few months.
MUST WATCH FOR TOURISM ENTHUSIASTS- https://kalkinemedia.com/nz/video/how-regional-new-zealand-is-set-to-get-a-tourism-boost-nz-market-update
(Disclaimer- All currencies denoted are in NZD unless specified)