NZ, Australian shares drop, Asia to follow as weak Chinese data saps risk appetite

New Zealand shares suffered their biggest decline in almost four years and Australian shares dropped, heralding what's expected to be an Asia-wide selloff after weak Chinese manufacturing data added to concern about the world's second-largest economy and sapped risk appetite.

The S&P/NZX 50 Index fell almost 2 percent, heading for the biggest daily decline since October 2011, and Australia's S&P/ASX 200 Index sank 2.2 percent, the first two markets in the Asia Pacific region to open following a slump in US and European stocks on Friday. The S&P 500 Index has dropped 6.2 percent in the past week, extending its decline amid speculation a dimmer global outlook may mean the Federal Reserve is slower to raise interest rates.

The slump on Friday was sparked by the release in China of the Purchasing Managers' Index from Caixin Media and Markit Economics, which fell to 47.1 in August, from 47.8 in July and below the median estimate of 48.2 in a Bloomberg survey. China is New Zealand's biggest trading partner and the largest export market for Australia's raw materials.

"Expectations are markets will be down pretty much across the board," said Grant Williamson, a director at brokerage Hamilton Hindin Greene. Still, the selloff could lure some investors back and "it will be interesting to see whether the bargain hunters come in to push prices back up."

New Zealand is about half way through its earnings season and there was still a prospect that the local stock market would be underpinned by company results, he said.

Auckland International Airport fell 2.7 percent to $5.07 after posting full-year earnings that beat its own guidance and Chorus fell 3.6 percent to $2.65 after reporting a 39 percent drop in profit that missed a forecast from Forsyth Barr. The brokerage is expecting a median 2 percent gain in normalised profit across the 48 listed companies it follows.

Bank of New Zealand's global risk appetite index dropped to 23 percent on Friday, from 59 percent earlier in the week, which amounted to "a serious collapse in global risk appetite," said market strategist Kymberly Martin.

Still, fund manager Harbour Asset Management said it is "neither bullish nor bearish" on equity markets in the face of the "noise" of recent weeks, including weaker Chinese data, devaluation of the yuan and heightened tensions on the Korean peninsula.

"Equity markets have had an extraordinary run in the last six years, supported by official US overnight interest rates held at an all-time low of 0.25 percent," the Wellington-based fund said. "However, significant change is occurring. We may be moving into a phase where markets become less reliant on policy stimulus, and more focused on economic fundamentals and company earnings."

(BusinessDesk)