NZ Stocks Stabilise after Initial Fall

08 August 2011 - Which Way to Pay

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NZ Stocks Stabilise after Initial Fall

The New Zealand stock exchange closed with a decrease in shares by 2.78% today which was up earlier sharp falls this morning. The instability in the market reflects Standard & Poor's downgrade of the U.S. sovereign credit rating from top-notch AAA to AA+. This comes as yet another blow to the struggling U.S. economy and heightens fears that the world's number one economy may be headed back into recession.

In reaction to the US economy problems, Grant Williamson, director at Hamilton, Hindin, Greene commented: "New Zealand, being the first market to open post the S&P announcement, did appear to over react when we were down some 3.5%''.

The NZX-50 was down by greater than 3% after the first hour of trading hitting a record low in the last 11 months. However, no further falls meant that trading closed with the NZX-50 index down by 2.78%.

Similar drops were seen in Asian markets throughout today’s trading. Chinese shares dropped to 4.78% in late morning trade before limiting its losses to 4.00%. In Japan, the benchmark Nikkei was down 2.1% in early afternoon trade, Hong Kong's Hang Seng feel by 4% and South Korea's Kospi slid by3.3%.

Australia's S&P/ASX 200 index dropped 1.8%. Singapore's benchmark tumbled 3.7% and Taiwan's markets were down 2.6%.

The chief economist of West Banking Corp. Bill Evans spoke on the dropping share prices:

"I think it's still a matter of people being cautious given they don't really know how wildly these overseas markets will respond...I would expect people will take the risk off the table at the moment waiting for some more clarity in those two big issues: how will the US respond to the downgrade and will the Europeans settle down these concerns in Europe?'' he said.

Without doubt, the burst in activity in today’s markets underscore how government debt levels in Europe and the US directly impact financial markets. Indeed, heightened concerns now exist regarding how such debt troubles could negatively impact upon the global recovery from the 2007-2009 financial crisis.

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