New Zealand among vulnerable nations, says S&P

New Zealand is not immune to disruptions in offshore capital markets and could suffer from an export-driven slowdown, ratings agency Standard & Poor’s said today.

While stating that Asia Pacific nations would not be immediately affected by the downgrade of the US credit rating over the weekend, S&P warned that some sovereigns could be hit hard from a fresh global financial crisis.

The agency said the US rating change to AA+, together with weakening sovereign creditworthiness in Europe, pointed to an increasingly uncertain and challenging environment ahead.

"If a renewed slowdown comes, it would likely create a deeper and more prolonged impact than the last one," S&P said in a statement.

“The implications for sovereign creditworthiness in Asia-Pacific would likely be more negative than previously experienced, and a larger number of negative rating actions would follow.”

S&P singled out New Zealand among a handful of other Asia Pacific countries whose economies could suffer as a result of weaker demand for exports and/or lower export prices, or both.

At the same time countries that have weaker external positions could come under pressure as international liquidity tightens forcing some to require additional external assistance to prevent sharp economic adjustments.

''Those with financial systems reliant on off-shore markets may face reduced liquidity and a heightening of refinancing risk in the near term. To varying degrees, Pakistan, Sri Lanka, Fiji, Australia, New Zealand, Korea, and Indonesia may be affected,'' S&P said.

And some countries continue to bear the scars of the recent downturn.

''The fiscal capacities of Japan, India, Malaysia, Taiwan, and New Zealand have shrunk relative to pre-2008 levels. If a renewed slowdown comes, it would likely create a deeper and more prolonged impact than the last one. The implications for sovereign creditworthiness in Asia-Pacific would likely be more negative than previously experienced, and a larger number of negative rating actions would follow.''

New Zealand is the only country other than the U.S. that has a AA+ rating from S&P and an Aaa grade from Moody’s.

Earlier today Prime Minister John Key said New Zealand was in a relatively good position to weather the global economic turmoil following the US credit downgrade and the ongoing eurozone debt crisis.

He said he does not believe New Zealand's economic growth will be stopped in its tracks as Australia remains the country's largest market and ‘for the most part we are competitive there against Australia" and higher commodity prices offset some of the appreciation of the NZ/US exchange rate.

Equities slide as fallout continues

The New Zealand sharemarket had a rough ride in wake of the fresh uncertainty and fears of a fresh global financial crisis.

The benchmark NZX-50 index sagged 3.3% at one stage before recovering slightly to be down 82 points, or 2.5%, at 3194 by 4pm.

Most stocks suffered with 101 falls outnumbering 25 rises on the main board.

Australia's benchmark S&P/ASX-200 index initially fell more than 2%, before settling at 4039, down 1.7% on Friday’s close, while the broader All Ordinaries index was down 1.5% to 4111.

The two markets were among the first to open Monday following S&P’s historic cut to America’s credit rating.

James Lee, head of institutional equities at First NZ Capital, said the market was down on retail selling.

The nervousness comes as many New Zealand listed companies prepare to release earnings reports for the 2011 year.

“The market wants to see some stability in liquidity in credit markets, the earnings themselves will be largely irrelevant in this environment unfortunately,” Mr Lee said.

Meanwhile, business confidence dropped back sharply in a BNZ Bank survey on Friday.

The BNZ confidence survey showed only a net 22% of firms surveyed expected the economy to improve in the coming year, down from a record net 57 per cent positive in June.

The survey replies came in largely on Friday before S&P’s downgrade of the United States credit rating.