Latest / Best of Business / Michael Luke: Milford Asset Management expert on the impacts of the ongoing conflict in Iran

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Michael Luke: Milford Asset Management expert on the impacts of the ongoing conflict in Iran · Best of Business

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  Speaker 1: You're listening to a podcast from News Talks'd be follow
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  Speaker 2: Michael Luke Milford Asset Management is with us high Michael, So,
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  Speaker 2: how's our share market fearing? You know, with the surround war.
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  Speaker 3: So the New Zealand share market's down about three percent
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  Speaker 3: so far this month, you know, with the Iron conflict
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  Speaker 3: and straight of Hamu's disruption. It's fair to say it
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  Speaker 3: is really weighing on sentiment and heading our share market
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  Speaker 3: in a few different ways. Firstly, there's the direct impact
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  Speaker 3: of higher oil and higher fuel prices, as well as
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  Speaker 3: some of the uncedenty around fuel supply. Then you have
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  Speaker 3: the indirect effects flowing through the economies, such as higher
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  Speaker 3: inflation risk, the potential impact on interest rates, and I
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  Speaker 3: think general confidence taking a bit of a hurt. So
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  Speaker 3: our share market is trying to price all that in
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  Speaker 3: right now.
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  Speaker 2: Obviously there will be some companies that are more directly
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  Speaker 2: impacted by the higher fuel prices than others, right.
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  Speaker 3: Yeah, So it's really those travel and transport companies that
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  Speaker 3: have been had the hardest. As you'd expect now in
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  Speaker 3: New Zealand's share price has fallen about twenty percent so
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  Speaker 3: far this month. And then one of the company's likely
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  Speaker 3: most exposed now while they have largely hedged their oil
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  Speaker 3: price exposure, they are not hedged to the crack spread
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  Speaker 3: or basically the costs are to an oil into jet fuel,
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  Speaker 3: which has risen significantly now. The price of jet fuel
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  Speaker 3: is actually roughly doubled this year. While the company in
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  Speaker 3: New Zealand, while they've reduced some flights and increase fares,
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  Speaker 3: this will likely have a greater impact in the short
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  Speaker 3: term if the companies to spinning their earnings guidance. If
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  Speaker 3: you look at other travel companies like Aukland Airport now
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  Speaker 3: their share prices are down about eight percent this month.
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  Speaker 3: They will have some impact from in New Zealand cutting
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  Speaker 3: back on some flights, but the bigger impact for Aukland
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  Speaker 3: Airport would be if there's a bigger softening I guess
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  Speaker 3: in demand for international travel in this environment. And then
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  Speaker 3: if you go look at some of our transport companies
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  Speaker 3: like Freightways, which owns New Zealand couriers. Now their share
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  Speaker 3: price is down about seven percent this month. Actually, transport
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  Speaker 3: companies like Freightways, they generally have a type of fuel
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  Speaker 3: seer charge mechanisms so they can pass that through. But
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  Speaker 3: I guess if you end up with higher prices that
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  Speaker 3: could impact demand. Now, I think the real impact are
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  Speaker 3: really be those companies that are being hit by these
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  Speaker 3: high fuel prices that don't have the ability to pass
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  Speaker 3: that on due to fixed prices or some other mechanism.
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  Speaker 2: And what do you think of the broader implications for
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  Speaker 2: the economy.
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  Speaker 3: So I think there are a few things i'd highlight. First,
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  Speaker 3: there's really the impact on inflation and interest rates. So
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  Speaker 3: if oil prices do stay elevated, that would create inflationary
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  Speaker 3: pressure as oil ultimately feeds into the price of everything. Now,
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  Speaker 3: that could put up upwards pressure on interest rates over time.
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  Speaker 3: And we've actually already seen some of this price then
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  Speaker 3: with New Zealand wholesale interest rates increasing over the month,
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  Speaker 3: and that saw a couple of the banks increase mortgig
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  Speaker 3: rates today. The second thing at highlight is just the
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  Speaker 3: impact on consuming a sentiment. Now, if increase in fuel prices,
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  Speaker 3: consumers might have to watch this spending or lot to
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  Speaker 3: cut back our swear. And I think it's fair to
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  Speaker 3: say it's been a tough few years for the New
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  Speaker 3: Zealand economy and we've only just started to see some
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  Speaker 3: signs of improvement. But if you have kind of weaker
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  Speaker 3: confidence and higher inflation fares, there is a risk that
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  Speaker 3: temper is that slightly the I guess, you know. Putting
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  Speaker 3: it all together, I think the overall overall impact on
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  Speaker 3: our economy and global share markets will ultimately come down
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  Speaker 3: to how long it takes for this conflict to be
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  Speaker 3: resolved and how long it takes for the strait to reopen.
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  Speaker 3: If this is short and the earnings impact for most
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  Speaker 3: of our companies would actually be quite small, but if
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  Speaker 3: it becomes extended, it becomes a larger risk.
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  Speaker 2: Yeah, hey, Michael, thank you. That's fascinating. I really appreciate
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  Speaker 2: It's Michael Luke, Milford Asset Management.
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