Sharemarket falls as bond yields spike higher, reducing appeal of equities – Stuff.co.nz

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Investors are expecting higher inflation, which is weighing on the sharemarket.

The sharemarket reversed an earlier gain to end the day lower as expectations of higher inflation pushed up bond yields, denting the appeal of some stocks.

The benchmark S&P/NZX 50 Index closed down 0.8 per cent, or 95.067 points, to 12,085.18 on Monday.

The 10-year government bond yield lifted 7 basis points to 1.913 per cent late Monday afternoon, from 1.84 per cent around midday.

We have seen a pretty significant reversal in the market as interest rates spike up further, said Brad Gordon, an investment adviser at Hobson Wealth Partners.

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Its inflationary driven, he said. Inflation feeds directly through to interest rates and interest rates feed into stock market valuations. From a valuation perspective, rising interest rates are not good for stocks.

Gordon said the rise in bond yields hurt stocks with a high price-to-earnings ratio, such as Fisher & Paykel Healthcare and The a2 Milk Company, two of the biggest companies on the benchmark, which reversed their early gains to finish lower.

Fisher & Paykel fell 4.2 per cent to $27.34, its lowest value this year. A2 Milk dropped 2.1 per cent to $9.92.

KIRK HARGREAVES/Stuff

Changes to global energy indexes are expected to prompt selling of Meridian and Contact shares.

Electricity generators Meridian Energy and Contact Energy also lost their shine after a Forsyth Barr report said changes to S&Ps Global Clean Energy Index would reduce the weightings of the two companies and require exchange-traded funds that track the index to sell the companies shares.

Forsyth Barr estimates the changes would result in the sale of about 9 per cent of Contacts shares and about 8 per cent of Meridians shares. Contact shares offered great value, while Meridian looked expensive, the analysts said.

Contact slid 0.5 per cent to $6.68, while Meridian slipped 3 per cent to $5.15.

The main news of the day was the announcement by Oceania Healthcare that its chief executive Earl Gasparich had resigned while at the same time Metlifecare announced that it was employing Gasparich as its new chief executive to implement its growth strategy.

Its a bit of a surprise, said Gordon. We dont actually see CEOs move like that, poached directly by competitors, very often.

Oceania dropped 1.4 per cent to $1.43.

Meanwhile, the newest listing on the sharemarket, meat kit company My Food Bag, fell for a second day, down 2.3 per cent to $1.70. The shares, which were sold to investors at $1.85 each, closed down 5.9 per cent at $1.74 on their first day of trading on Friday.

Gordon described the shares as very soggy and said investors were probably a little bit disappointed.

He noted the initial offer was at a relatively full price, and the shares had declined along with the rest of the market, as higher interest rates impacted valuations.

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Sharemarket falls as bond yields spike higher, reducing appeal of equities - Stuff.co.nz