{"id":349663,"date":"2026-03-27T00:26:10","date_gmt":"2026-03-27T00:26:10","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/349663\/"},"modified":"2026-03-27T00:26:10","modified_gmt":"2026-03-27T00:26:10","slug":"how-professional-investors-are-handling-sharemarket-volatility-and-the-middle-east-meltdown-stock-takes","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/349663\/","title":{"rendered":"How professional investors are handling sharemarket volatility and the Middle East meltdown \u2013 Stock Takes"},"content":{"rendered":"
It\u2019s not the first oil shock that markets have shrugged off.<\/p>\n
\u201cIn 2022, when Russia invaded Ukraine, oil prices spiked to over US$120 a barrel and inflation surged globally. It was an uncomfortable period \u2013 but oil markets eventually rebalanced, inflation came down and global sharemarkets today are well above where they were before that war started.”<\/p>\n
Gardyne said looking at major geopolitical shocks since the 1990 Gulf War, sharemarkets have typically fallen 3-5% initially \u2013 broadly in line with what we\u2019re seeing now \u2013 and then recovered within a few months as the situation became clearer.<\/p>\n
\u201cThat doesn\u2019t mean we\u2019re complacent. We\u2019re watching the duration of the conflict closely \u2013 because the key variable right now is time.<\/p>\n
\u201cA conflict that ends in the next few weeks looks very different to one that runs for months. We\u2019re actively assessing where oil-price sensitivity sits across our portfolios, and looking at the opportunities this volatility is creating \u2013 because when markets reprice on fear, it can create attractive entry points in high-quality businesses.”<\/p>\n
Greg Smith, investment specialist at Generate, says some of the market\u2019s best days can occur during uncertain periods.<\/p>\n
\u201cBecause rebound days are unpredictable and often occur amid downturns, attempts to time the market can do lasting damage. For KiwiSaver and managed fund investors, the real risk isn\u2019t short-term volatility \u2013 it\u2019s missing the market\u2019s best days.\u201d<\/p>\n
Pie Funds chief investment officer Mike Taylor says his team is sifting through multiple information sources every day, but the key detail is around when the Strait of Hormuz will reopen fully again.<\/p>\n
\u201cBut before that needs to come a ceasefire, so what\u2019s happened this week has been relatively important in that Trump has decided he wants to take an off-ramp.\u201d<\/p>\n
Taylor says the market will always look through major events.<\/p>\n
\u201cIf you think about Covid, the market bottomed the day we went into lockdown, not once we had a vaccine, and it will be fairly similar with this. The market around the Middle East issue will bottom the day there is a ceasefire and not once the terms have been agreed.<\/p>\n
\u201cThat\u2019s what I\u2019m looking for.\u201d<\/p>\n
Taylor says a ceasefire won\u2019t necessarily turn markets around, as there are other issues also weighing on them like the private credit meltdown and the artificial intelligence (AI) sell-off.<\/p>\n
He reckons the key will be interest rates.<\/p>\n
\u201cA lot of people haven\u2019t been talking about that but interest rates have gone up around the world, not necessarily from rate hikes, Aussies have had a hike but swap rates are up a lot.\u201d<\/p>\n
Taylor says the Australian two-year swap rate is up 150 basis points since October last year. \u201cIn the UK, their rates are at the highest they have been since pre-GFC … It\u2019s a headwind for the economy. So I want to see rates head back down to be a tailwind again, which will come from lower inflation expectations because it\u2019s hard for equities to rally in the face of higher rates.\u201d<\/p>\n
Three scenarios for Air New Zealand <\/p>\n
Forsyth Barr has slashed its target price for Air New Zealand from 50c a share to 35c as the Strait of Hormuz logjam continues.<\/p>\n
Analysts Andy Bowley and Hugh Lockwood gave the airline an underperform rating in a report, as they did on March 5.<\/p>\n
\u201cAir New Zealand\u2019s near-term outlook has rapidly unravelled since the Iran war broke out,\u201d they said yesterday.<\/p>\n
Bowley and Lockwood outlined three scenarios they said would impact the premium oil refiners applied to jet fuel \u2013 and impact Air New Zealand\u2019s fortunes.<\/p>\n
The jet fuel crack spread or premium for years has hovered at around US$10-$20 a barrel but this month it rocketed up past US$100.<\/p>\n
In the best-case scenario, the Middle East conflict ended within a week, the Strait of Hormuz opened straight after that, and the crack spread recovered by the end of June to US$20.<\/p>\n
In a medium scenario, the strait reopened by May 31 and the crack spread would hit US$20 by the end of this year.<\/p>\n
In the worst case, the strait was closed until the end of the year, the crack spread stayed high all year, and only hit US$20 later next year.<\/p>\n
For airlines which hedged, such as Air NZ, the risk was partially but not fully mitigated, and only for so long.<\/p>\n
Bowley and Lockwood said the airline\u2019s strategy review announced last month was vital for positioning the company for success over the medium to long term.<\/p>\n
\u201cWe assume it is profitable again in FY28, but at a level that delivers returns well below the cost of capital.\u201d<\/p>\n
But in the meantime, fuel prices would dictate losses, and scope for profit generation.<\/p>\n
\u201cThe lagged nature of its jet fuel contracts means cash costs have only modestly lifted to date but will likely increase materially into April,\u201d the analysts said.<\/p>\n
More cuts to some services might be needed if fuel costs stayed high, they added.<\/p>\n
The airline has faced a daily additional fuel bill estimated at $4 million to $7m this month.<\/p>\n
An udder disaster<\/p>\n
Craigs Investment Partners has downgraded its investment rating on Synlait Milk to underweight and slashed its target price 46% to 42c, following the company\u2019s first-half result this week.<\/p>\n
The Canterbury-based dairy processor on Monday reported an earnings before interest, taxes, depreciation and amortisation (ebitda) loss of $34.7m and a net loss after tax of $80.6m.<\/p>\n
In a research note headlined \u201cResult an udder disaster, outlook soft as butter\u201d, Craigs\u2019 analysts Stephen Ridgewell and Rob Morrison said much of the loss was driven by production challenges, poor contracting and costs associated with restocking a key customer.<\/p>\n
But there were also other fundamental issues at play.<\/p>\n
While management put the losses down to \u201cone\u2011offs\u201d, the Craigs analysts noted that Synlait had recorded $131m of one\u2011off costs since the first half of 2023, averaging $38m per year, which it argued were effectively business\u2011as\u2011usual costs in a poorly managed, price\u2011taking dairy processor.<\/p>\n
Synlait\u2019s operational challenges were deeper than previously understood, Ridgewell and Morrison said, highlighting a 90% fall in Nutritionals gross profit due to unexpectedly pivoting processing focus to whole milk powder.<\/p>\n
\u201cFollowing last year\u2019s manufacturing issues, Synlait worked to rebuild a2 Milk Co\u2019s inventory, leaving the firm with surplus raw milk.\u201c<\/p>\n
Some external raw milk sales fell through, forcing a pause in Nutritionals production while excess milk volumes were processed.<\/p>\n
Plant configuration meant that the raw milk could only be converted to WMP (wholemilk powder), the price of which fell sharply late in 1H26, dragging Ingredients revenue and gross margin lower.<\/p>\n
The analysts noted that despite significant cost and disruption, the rebuild of a2 Milk\u2019s inventory remains incomplete, extending execution risk into the new season.<\/p>\n
Synlait\u2019s balance sheet remains weak with net debt up $80m year-on-year to $472m.<\/p>\n
While the upcoming $280m net asset sale to Abbott will reduce leverage, Craigs estimates Synlait will still exit the 2026 financial year with $150-190m of net debt, with banking covenants already having been suspended or relaxed.<\/p>\n
Looking ahead, Craigs highlighted material operational and commercial risk as a2 Milk begins insourcing English\u2011label infant formula volumes from 2027, creating a $30-50m ebitda hole.<\/p>\n
With no signed replacement contracts, continued cash burn, poor disclosure and major shareholders poorly aligned with minorities, Ridgewell and Morrison said Synlait was \u201cclose to uninvestible\u201d.<\/p>\n
\u201cNew CEO Richard Wyeth has a reputation as a competent operator, and has made a number of senior management changes, but has also indicated it may take 2-3 years for Synlait to turn around.\u201d<\/p>\n