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Market Wrap with Grant Davies - MSCI Index Reshuffle Dominates Trading

An MSCI index reshuffle sent shares for Fletcher Building soaring after it survived, but Mercury Energy shares fell as it was culled from the index. Overall, the NZX50 index dipped 4.45 points to 8,708.78, on turnover of $218 million. “Across the board what we’re seeing with these index changes is the influence of passive money in the market,” says Hamilton Hindin Greene investment adviser Grant Davies “The tracking of the index actually leading to share price movements makes it slightly less than passive really.”

Today it was announced that A2 Milk will join the MSCI New Zealand Index from June 1 and Mercury Energy will exit that index. Mercury’s departure, which saw the company down 1.43% to $3.11, also means Fletcher Building will remain. Fletcher gained 3% to $6.56. A2 Milk went down 1.5% to $13.10. Synlait Milk soared 5.5% to $10.75, Restaurant Brands rose 1% to $7.70 and Tourism Holdings gained 3.8% to $6.35, as all three companies moved into the small cap index.

Mercury's buy up of a 20% stake in wind power company Tilt Renewables, with an option to buy a further 6.8% in the next six months, was partially stymied with the news 51% Tilt shareholder Infratil is unlikely to approve any further stake. “There will be a need for capital in [Tilt] at some stage, so both companies will no doubt be prepared to put their hand in their pocket to see that happen,” says Mr Davies. Tilt was up 1.5% to $2.03, while Mercury dropped 1.4% to $3.11.

Air New Zealand fell 2.2% to $3.31 on news it will hike domestic fares by 5% from Thursday. “At the pumps, you’re starting to see nearly record high fuel prices and that’s flowing through to the profit margins that Air New Zealand can achieve,” says Mr Davies.

Ryman Healthcare jumped 1.9% to $11.62. “The rest of the sector is up around 5% since we heard the Reserve Bank say we’re going to get lower interest rates for longer so obviously that’s seen as beneficial for the housing market,” says Mr Davies. Ryman Healthcare will announce its full year results on Friday.

EROAD gained 2.9% to $3.60. SkyTV went up 1.84% to $2.21. The New Zealand dollar fell to 69 US cents today, a drop Mr Davies attributes to growing fears for the damage the mycoplasma bovis disease could wreak on the dairy industry.

Filed under Grant Davies \ NBR

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