Talk Money with Tony Field – July 9, 2015

A stockbroker prints the day's transaction list at the Hong Kong Exchanges and Clearing Limited (AAP)
A stockbroker prints the day's transaction list at the Hong Kong Exchanges and Clearing Limited (AAP)

Former Reserve Bank Governor Don Brash says New Zealand should be concerned about the falling Chinese stock market.

Chinese stocks are down around 30 percent from their peak last month and almost half of their listed companies are in a trading halt.

The authorities have now imposed a rule that anyone who owns 5 percent or more of a listed Chinese company will not be allowed to sell their shares for six months.

The Chinese stock market is largely made up of individual investors. Small retail investors account for 80 percent of the market. It is not dominated by institutional investors the way the US, European and New Zealand markets are.

Dr Brash told Paul Henry this morning "the share market is a relatively small part of the Chinese economy, perhaps luckily, because it is substantially overvalued, still, despite the fall, it is still very highly priced. So it is not good news for China and therefore not good news for New Zealand."

The plunge on the Chinese stock exchanges occurred after prices leapt more than 100 percent in a year.

Dr Brash said: "It is still up 10 percent this year and 70 percent on this time last year, so it is still high."

Henry asked if he was worried.

"I am," he said. "One of the things that is making it worse in some sense is the Chinese government's vigorous attempts to stop it. When the Chinese government is saying 'don't panic, don't panic' everyone thinks 'my gosh, there must be something seriously wrong here'. I think in fact it is counter-productive."

An increasing number of the individual investors in the Chinese stock market have bought shares with borrowed money.

With the losses growing, the Chinese authorities are worried about protests in the streets.

The thinking had been that the problems in the Chinese stock market would not spread to the wider economy. But markets thrive on confidence and fall when confidence disappears.

The jitters are spreading, and are not helped by the fact that China's economy was already struggling to hit its 7 percent growth target.

Then there is the issue of China's property market. The boom, built on borrowed money, is slowing.

The fall in the Chinese stocks has seen a sell-off in commodities.

US oil fell almost 2 percent today to US$51 a barrel, adding to a 7.7 percent fall two days ago.

Iron ore has been smashed. It's fallen to a six-year low, down 10 percent to US$45 a tonne.

That is bad news for Australia, and with Australia being so important to New Zealand it is bad news for New Zealand.

Trading on the floor of the New York Stock Exchange was halted for over three-and-a-half hours, following what the regulators say was a technical glitch.

It occurred shortly after a computer problem grounded United Airlines flights for more than an hour.

The Wall Street Journal also suffered computer problems.

This prompted lots of speculation and a lift in the prices of cyber security stocks. But authorities say the computer problems were not linked and there was no evidence of "malicious" activity.

Stocks continued trading on the Nasdaq and other exchanges.

Floor trading resumed for the final 50 minutes of the trading day.

The Dow Jones finished at 17515, down 261 points, or 1.47 percent. The S&P500 finished at 2046, down 34 points, or 1.67 percent. The Nasdaq finished at 4909, down 87 points, or 1,75 percent.

Petrol and diesel prices have fallen two cents at the New Zealand pumps. That is good timing for anyone who is heading off for a break during the school holidays.

It means the typical price for 91 unleaded petrol is $2.099 and diesel is $1.289.

But there are some stations selling it for up to 12 cents per litre less than that.  There are also stations where it is more expensive, especially in more remote locations.

Oil has been falling because of the concerns about China and Greece, as well as the prospect for more supply being released if trade sanctions are lifted against Iran.

Petrol pump prices are not falling by the same percentage as oil prices. That is because New Zealand buys refined fuel and our dollar is weakening.

The kiwi dollar is trading at 67.29 US cents this morning. That is up over half a cent from yesterday morning, when it was trading at 66.47 cents.

It is also up against other major currencies: trading at 90.59 Australian cents, 43.80 pence and 60.75 euro cents.

Here is my chat with Paul Henry from this morning.

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