Markets continue to tank globally - what it means for you

Source: 1News

Get ready for volatility - that's the message from economists to Kiwis as markets crash around the world.

Here in New Zealand, some of the country's biggest companies like Fletcher and Air New Zealand faced losses.

That has a knock-on effect on people's KiwiSaver, house values, shares and any savings in the bank.

One person 1News spoke to on Wednesday said they switched their KiwiSaver from a high-risk to a conservative fund "because I know everything is quite volatile".

Another said they had shares in Sharesies, which had taken a hit.

"I think it'll bounce back eventually, it just takes time."

New data from the Real Estate Institute also confirmed Auckland house prices had fallen for six months in a row. In other parts of the country, there had been a slowdown in demand and prices.

At closing time on Wednesday, the S&P/NZX 50 fell 5 points - an improvement from Tuesday's decline of as much as 250 points, the lowest level in two years.

Stocks also plunged further on Wall Street as it entered a "bear market", European and Asian markets reeled, and Australia's ASX had almost $90 billion wiped off share values on Tuesday.

It came after the US Federal Reserve signalled it would aggressively raise interest rates to try to control inflation, which is the highest in decades as the world grapples with Covid-19, supply chain issues, labour shortages, a slowdown in China's economy and the war in Ukraine.

But higher interest rates made investors nervous and less likely to put money into risky investments, triggering the stock sell-off. New Zealand's OCR was set at 2.0% in late May - the second month in a row the central bank had hiked interest rates by 50 basis points.

Craigs Investment Partners' Mark Lister said raising interest rates slowed down economic growth and put pressure on borrowers and customers.

Part of the tumble was also due to a "natural unwind" from the growth of some asset values during the pandemic.

"Although it's happening very quickly and it is feeling quite scary for investors," he added.

"You're seeing investors repricing what they are willing to pay for houses, shares, bonds things like that, and investors wondering what it will mean for future growth."

If that continues and interest rates soar further, the fear is that the country could tip into recession.

Lister said a recession in New Zealand was "definitely possible".

"Fifty-50 absolutely. We just don't know. It'll come down to whether the inflation we're seeing at the moment comes off in the next six to 12 months."

Prime Minister Jacinda Ardern admitted on Wednesday that the economic environment was tough but she insisted New Zealand was in a strong position.

"We have things like significant export growth, things that give us stability in New Zealand that will help us we move through this Covid recovery and tough economic time."

New Zealand's latest GDP figure for the March quarter is expected on Thursday.