Market News 13 October 2025

Johnny Lee writes:

SHARE investors will be doing a double-take at their portfolio valuations after last week’s announcement by the Reserve Bank, which saw new records reached amid strong demand for yield.

The share market index reached 13,600 following the 50-point cut, before easing back to 13,500 by the end of the week.

The Reserve Bank’s cut was not totally unexpected, with economists divided as to whether a 25- or 50-point cut would be made.

The RBNZ noted that the New Zealand economy has had a weak 2025 so far, due to both local and international factors. Households are behaving “cautiously”, with discretionary spending still being restrained. Economic growth has struggled. High power prices were cited as constraining growth, particularly for manufacturing.

Agriculture remains a bright spot, with the RBNZ noting very high commodity pricing over the period. 

Internationally, the RBNZ notes that investment in Artificial Intelligence and the infrastructure surrounding this sector is helping to boost overall economic activity. 

The commentary regarding cautiousness from households is an interesting one. The relationship between lower interest rates and mortgage costs is obvious and well understood – lower rates tend to flow through as lower interest costs eventually. However, whether households use these savings to boost consumption, or retire debt, is an individual choice. 

Lower rates should also spur willingness to borrow, and willingness to invest. 

The concern around Artificial Intelligence is also an interesting point. 

The increasing use of AI is absolutely real and evident throughout the globe. Use of AI - whether to proof-read, analyse, generate content or a multitude of new purposes - is now ubiquitous. 

The question may instead be whether the investment by the owners of these technologies will pay off. Billions are being spent on model training, data centres and new electricity generation to power these facilities. Nvidia famously reached a market capitalisation of $1 trillion in May 2023. 26 months later, Nvidia became the first company to reach $4 trillion. The gains have been staggering.

And in the case of Nvidia, revenue is climbing. Revenue in 2023 was $27 billion. In 2024, this figure was $61 billion. In 2025, this figure reached $130 billion. 

Still, fears of an “AI bubble” will likely persist, given the huge valuations being afforded to these companies. Investors want to see a return on their investment.

Last week's rate cut by the RBNZ may not be the last of the year. The next meeting is scheduled for November 26, with economists raising the possibility of another cut before the summer break.

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THE decision by the RBNZ had a notable impact on the sharemarket.

The yield stocks, in particular, saw a rapid rise in value. Virtually every yield stock on our exchange has now enjoyed a rally this month as the attractiveness of alternative investments - cash and term deposits - declines further.

Vector’s share price is now up 28% for the year, Argosy is up 29%, ANZ Bank is up over 30%, while even Spark has begun a modest recovery, up 18% from its low.

A few stocks, including Contact Energy, are down for the year, after soaring in late December last year and beginning 2025 at historical highs.

These gains even exclude dividends for the year. Most of these companies pay a significant proportion of their profits out in the form of dividends, retaining very little for growth.

As one would expect, bond yields fell. Meridian Energy issued a 6.5 year bond one month ago at 4.55%. This is already trading below 4% on the secondary market. These values represent the effective yield of a buyer today, meaning that low yields equate to a higher price for the bond.

Growth stocks have not followed the same trajectory. 

Fisher and Paykel Healthcare is actually down for the month, as are Infratil and Mainfreight. EBOS is modestly higher, but that is a reflection of a bounce from the post-result lows.

Overall, yield stocks have enjoyed a strong 2025 and this continued after the RBNZ announcement. With cash rates heading lower, expect 5% and 6% returns to look increasingly attractive, particularly in defensive industries.

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LAST week ended on a sour note for markets, however.

The US administration’s decision late on Friday to hike tariffs on China led to a modest sell-off of shares, and a very sharp decline in various cryptocurrencies.

Bitcoin fell 9%, equivalent to about 350 billion New Zealand dollars.

The Dow fell only 2%. Technology stocks fell around 3-5%.

Of course, this is not the first instance of sharemarkets falling on the back of tariff threats.

Previous declines saw rebounds in the days or weeks after the decisions were reversed or softened.

Indeed, one wonders how many more times we will see this pattern play out over the years ahead. Certainly, the initial reaction to this announcement pales in comparison to the reaction observed in April.

The next US election is not scheduled until November 7, 2028.

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ANOTHER announcement late in the week, regarding infrastructure company Chorus, has led to some confusion.

The Government announced it is looking to off-load some of its investment in Chorus. The Government owns both equity and debt assets in Chorus.

However, the structure of the securities devalue them significantly.

The debt securities are non-interest bearing and unsecured, while the equity securities are effectively non-voting, redeemable preference shares - and redeemable in the form of equity conversion.

The debt securities mature in tranches over the next 11 years. Their value to an investor may be in the price at the time of sale, and the remaining duration until maturity.

These investments were made by the Government at the beginning of the fibre rollout to provide initial funding for the project. However, these are not ordinary shares (yet) and carry no voting rights. The debt has a zero coupon, and some tranches do not mature until 2036. 

More details of the potential sale are expected over the coming months.

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Travel

21 October – Lower Hutt – David Colman

22 October – Wellington – Fraser Hunter

22 October – Blenheim – Edward Lee

24 October – Nelson – Edward Lee (Full)

29 October – Auckland (Ellerslie) – Edward Lee (Full)

30 October – Auckland (Albany) – Edward Lee

31 October – Auckland (CBD) – Edward Lee

Johnny Lee

Chris Lee & Partners