New Zealand shares plunged after the UK voted to leave the European Union, taking investors by surprise with financial institutions hit hard.

The S&P/NZX 50 Index dropped 153.57 points, or 2.3 percent, to 6,667.78. Within the index, 44 stocks fell, four were unchanged and two rose. Turnover was $132.6 million.

"The next question will be just how far down markets will go overnight, particularly since they incorrectly rallied going into this," said Matt Goodson, managing director at Salt Funds Management. "Individual stock movements have not much information. Futures are down extremely sharply, and the difficulty is our market has been trading at expensive levels."

Xero, a notoriously volatile stock, led the index down, falling 8.1 percent. Research house Morningstar said yesterday that the accounting software developer would start turning profits from 2020 as it continues to grow its customer base in North America and the UK. Morningstar predicts Xero's annual loss peaked this year, and that it will go on to post a maiden profit of $87.6 million on revenue of $754.1 million in 2020.

A2 Milk, which has seen big movements of late as investor confidence has waxed and waned, fell 7.1 percent to $1.69 and New Zealand Refining Co dropped 5.1 percent to $2.41.

"The bright side is we are seeing quite a rally in bonds," Goodson said. "Credit spreads will move out, that's why the financial sector's been hard hit today - although the direct exposures are relatively modest."

Australia & New Zealand Banking Group fell 4.9 percent to $24.33, Heartland Bank dropped 4.8 percent to $1.20 and Westpac Banking Corp declined 4.5 percent to $29.60.

The local bourse rallied yesterday as markets speculated the UK would vote to remain in the European Union following polls indicating there was more support for 'Bremain' than 'Brexit', but has given up those gains today.

"The fear was always the exit voters would be more motivated than the remain voters, and that seems to be what has happened - where they have voted leave they've voted in greater numbers than expected," Goodson said.

Ryman Healthcare dropped 1.6 percent to $8.80. The company's board will ask shareholders to sign off on a 9 percent pay rise for directors as they cope with an increasingly larger retirement village operator.

Outside the main index, Smiths City Group rallied 3.9 percent to 54 cents, despite the NZX All index falling 2.2 percent on the Brexit news. The Christchurch-based retailer reported a 30 percent decline in annual profit while lifting sales as it overhauled its operations to exit low-margin business.

Cavalier Corp shares jumped 7.7 percent to 70 cents after the carpet maker raised 2016 earnings guidance as its broadloom carpets unit outperformed expectations and it sold an unprofitable carpet tile operation.

(BusinessDesk)