New Zealand's sharemarket closed at a three-year low yesterday as deepening concerns over the US housing and banking crisis continued to send shudders through world markets.
At midday yesterday, the NZSX-50 index was down at 3071, having closed the day before down 41.45 at 3080.10, reflecting a worldwide downturn spurred by US banking concerns.
At 5pm, it had slid further, closing down 39.65 points at 3040.45 - a step closer to broaching the psychological 3000 barrier - and its lowest level since June 2006.
The latest concern is US mortgage giants Fannie Mae and Freddie Mac - which hold almost 50% of US mortgage debt with more than $5 trillion ($NZ6.5 trillion) exposure - which have seen share prices slashed 70% during the past year from accumulated mortgage losses in a sector facing record mortgagee sales.
In the US yesterday, the Dow closed down 35 points, or 0.41%, at 11,055, the Nasdaq composite index was down 26.2 %, or 1.17%, at 2212 and the broader S&P500 index was 11.19 points lower, or 0.9%, at 1228.3.
Similarly, in Asia, all the major indices were down, with Singapore down 1.82%, the indices of Japan, Korea and Shanghai losing more than 2% and the Hong Kong index down 3.3%.
Australia's ASX200 index and the broader AllOrds index were down more than 2% at 5pm NZ time yesterday.
ABN Amro Craigs broker Peter McIntyre said that with the run of bad news from the US subprime mortgage debacle, global credit crunch, general downturn in equity and housing markets and US banking sector woes, investors' confidence had been severely knocked.
"With [investor] confidence at such a low ebb, it's not taking much to force [share prices] down.
"They're scared to buy because of the continual downturn," he said when contacted yesterday.
"Bear markets historically take 18 months to "play out".
In the present bear market, the key to regaining investor confidence would be the results of the forthcoming US company reporting season, he said.
The real estate and banking sectors would be the most closely scrutinised for signs of positive reports.
Earlier in the week, the Federal Reserve and US Treasury offered emergency cash to Freddie and Fannie to calm the flustered markets and investors, and extend their credit lines, at present set at $US2.5 billion each.
Propping up of the two mortgage lenders follows Friday's third-largest US bank failure when IndyMac BanK, worth an estimated $US56.3 billion, was seized by US bank regulators, following massive withdrawals of $US1.3 billion by panicked customers.
It was the fifth US bank failure this year.
While US markets initially rallied at the news of the availability of emergency cash for the Freddie and Fannie bailouts, and US Government purchase of shares, the likelihood of a diluting effect on those share prices saw a reversal of the brief rally.
ABN research yesterday concluded that, for the first half of this year, the share prices of Australia's major banks, which own New Zealand's major banks, were down around 30%.
This was caused by a spike in the wholesale funding rates, because of the credit crunch, but also because of the failure of a number of business models.
"In recent months, the share price weakness of the Australian banks appears to be driven by global sentiment and the likely impact that a slowing global economy will have on Australia and the banks," the research said.
