Michael Luke, Milford Asset Management is with us, hi, Michael.
So how's our share market fairing, you know, with the Surround War?
So, the New Zealand share market is down about 3% so far this month, you know,
with our own conflict in the state of her moves disruption.
It's fair to say it is really weighing on sentiment and hitting our share market in a few different ways.
Firstly, there's the direct impact of higher oil and higher fuel prices,
as well as some of the uncertainty around fuel supply.
Then you have the indirect effects flowing through the economy,
such as higher inflation risk, the potential impact on interest rates,
and I think general confidence taking a bit of a hit.
So, our share market is trying to price all that in right now.
Obviously, there will be some companies that are more directly impacted by the higher fuel prices than others, right?
Yeah, so it's really those travel and transport companies that have been hit the hardest as you'd expect.
Now, in New Zealand's share prices fall in about 20% so far this month,
and then one of the companies likely most exposed.
Now, while they have largely hedged their oil price exposure,
they are not hedged to the crack spread or, basically, the cost return oil into jet fuel,
which has risen significantly.
Now, the price of jet fuels actually roughly doubled this year.
While the company in New Zealand, while they've reduced some flights and increased fears,
this will likely have a greater impact in the short term,
with the companies suspending their earnings guidance.
If you look at other travel companies like Auckland Airport now,
their share prices are down about 8% this month.
They will have some impact from New Zealand cutting back on some flights,
but the bigger impact for Auckland Airport would be if there's a bigger softening,
I guess, and demand for international travel in this environment.
And then, if you go look at some of our transport companies like Freightways,
which owns New Zealand Couriers now, their share prices down about 7% this month.
Actually, transport companies like Freightways,
they generally have a type of fuel surcharge mechanism,
so they can pass that through.
But I guess if you end up with higher prices, that could impact demand.
Now, I think the real impact are really be those companies that are being hit by these high fuel prices
that don't have the ability to pass that on due to fixed prices or some other mechanism.
And what do you think of the broader implications for the economy?
So, I think there are a few things I would highlight.
First, there's really the impact on inflation and interest rates.
So, if oil prices do stay elevated,
that would create inflationary pressure,
as oil ultimately feeds into the price of everything.
Now, that could put up upwards pressure on interest rates over time.
And we've actually already seen some of this price turn
with New Zealand wholesale interest rates increasing over the month.
And that saw a couple of the banks increase mortgage rates today.
The second thing that highlighted is just the impact on consumer sentiment.
Now, with increase in fuel prices, consumers might have to watch their spending
or look to cut back elsewhere.
And I think it's fair to say it's been a tough few years for New Zealand economy.
And we've only just started to see some signs of improvement.
But if you have kind of weak confidence and higher inflation fears,
there is a risk that temp is that slightly.
I guess putting it all together,
I think the overall impact on our economy and global share markets
will ultimately come down to how long it takes for this conflict to be resolved
and how long it takes for the straight to reopen.
If this is short, then the earnings impact for most of our companies
would actually be quite small.
But if it becomes extended, it becomes a larger risk.
Hey, Michael, thank you. That's fascinating.
I really appreciate it.
It's Michael Luke, Milford Asset Management.
