Getting your share
The NZX is working hard to create value as the borders blur for investors and companies.
Anyone who bought A2 Milk shares at the start of this year has more than doubled their money, but if they bet on Sky Network Television, their investment is down about 30%. NZX chief executive Mark Peterson says there’s a “safer” way to get exposure to the sharemarket for new investors – managed funds and exchange-traded funds (ETFs). NZX’s NZ Top 50 Fund, which invests in the 50 biggest securities on the NZX main board, has gained about 13% this year.
NZX has 23 such ETF funds under its Smart Shares brand, providing exposures ranging from major global benchmarks and emerging markets to property and bonds.
Altogether, 836 million units of these funds are on issue, and funds under management totalled $1.9 billion as at July 31. That’s up from 173 million units and $300 million in July 2012.
Peterson says the NZX has just recorded five straight months of record growth in people signing up to Smart Shares. Millennials are one of the growth markets. Brokers say there’s been a notable pick-up in interest in the sharemarket from underforties, perhaps because their KiwiSaver accounts hold shares or because they see home ownership as out of reach.
That’s a positive sign for a market operator that has sometimes struggled to grow. It currently has 163 listed companies and 116 listed debt securities, little changed from July 2012 when there were 169 and 102 respectively. So far this year, some $480 million of new company shares and $2.1 billion of debt capital have been raised via the NZX.
The NZX has worked hard to stay relevant. It launched two special low-cost markets: NZAX for companies with lower valuations (so-called small-caps) and
NXT for start-ups. But lack of interest and of activity at this end of the market has prompted the company to reassess – it’s likely to absorb the two back into its main NZSX board.
It acquired and then sold the Clear Grain Exchange in Australia and has restructured its agricultural assets, selling agri magazines it had acquired to provide a full suite of services tied to the primary sector.
The value of shares listed on the NZX has increased 113% to $125.9 billion in the past five years. In that time, the median house price has gained 42%. But there’s still a massive gap: on the Kiwi household balance sheet data the Reserve Bank publishes, housing and land were valued at $758 billion.
Across the Tasman is a much deeper pool of equity capital. The total value of shares listed on the ASX is about A$1.5 trillion. There are 53 New Zealandbased companies listed there, of which 38 have their primary listing on the NZX and a foreign-exempt listing on the ASX.
Others went straight to the ASX – 9 Spokes International, Adherium, Martin Aircraft Company, Neuren Pharmaceuticals, Powerhouse Ventures, Tomizone, Volpara Health Technologies and Wangle Technologies were all attracted to being listed in a bigger market.
The jury is still out on whether it was the right move. Last month, Chapman Tripp partner Rachel Dunne said they might be better off coming home. For a start, a New Zealand-based ASX-listed company has twice the paperwork complying with two regulatory environments. It could still get the benefit of the ASX’s larger pool of capital with a primary listing on the NZX and an ASX foreign-exempt listing, she said.
Then there’s the fact of being a small company in a big market rather than being small in a small market.
“Being a minnow in a large market like the ASX does present challenges for listed companies, and it is telling that all of the New Zealand companies that chose to list solely on the ASX have had poor shareprice performance,” Dunne said.
But small-caps have also struggled on the NZX. In June, G3 Group said it might quit the NXT market just two years after joining it in a compliance listing. Last month, shareholders of GeoOp approved a plan to relocate to the ASX from the NZAX and raise funds via an initial public offering. Future Mobility Solutions, the company formerly known as SeaLegs, said in June it plans to delist from the NZX as the market is too small.
Sheldon Slabbert, a sales trader at CMC Markets in Auckland, says part of the problem is that Kiwis are surrounded
by global brands – Apple, Microsoft, Nike – but they aren’t directly investable through the local exchange. He also says the NZX may still not be doing enough to market its wares.
“You look at any newspaper and there are pages and pages of property porn,” he says. “There’s very little alternative investment being touted.”
CMC offers contracts for difference (CFDs) – bets on the movements in underlying securities including coffee futures, currency pairs, gasoline or pork bellies that the investors don’t actually buy or sell.
They’re complex products, but Slabbert says his clients have a better sense of risk than some leveraged property investors. “There’s an opportunity cost in this concentration of risk in property. It is preventing people from potentially creating real wealth.”
He also notes that property “is a long-only trade. It doesn’t give you the opportunity to go short. When property prices fall, you’re just going to have to grin and bear it.”
Going short – betting that a security or index is going to fall – may be tempting for some equity investors now. The benchmark NZX 50 Index is currently at a record high and analysts are still crunching their numbers on whether the current earnings season will provide justification for shares to be trading at such high multiples.
In ASB Bank’s latest survey of investor confidence, 78% cited a bank savings account as their main investment, compared with 15% of people who had shares as their main or other investment. Some 58% cited KiwiSaver as their main investment, ahead of the 54% of people who cited their own home.
Term deposits were almost twice as popular as shares, at 27%. Managed funds stood at 15%. potential annual bonus in return for a smaller sum that bumps up the income they can report to the bank, allowing them to borrow more.
But in 2017, the Generation Rent concept popularised by economists Shamubeel and Selena Eaqub – who recently took the plunge and bought a house – is shaping new debates about the next generation’s homeownership expectations.
“They’re all sort of desperate to be in the game,” says Gaynor, “but it’s actually quite difficult. But they’re not depressed over it. Human beings are remarkable. They get used to whatever the conditions are.”
Exacerbating the challenge posed by the unaffordability of house prices is the prospect that the housing market may be topping out, eroding the potential for capital gains, at least in the short term. Prices in Auckland fell 2.5% over the three months to the end of July, according to the Real Estate Institute of New Zealand, prompting Prime Minister Bill English to urge the Reserve Bank to forget about imposing further lending restrictions.
The conditions may spur new interest in home buying, as increasingly debt-shy banks, local buyers without enough saved to make a deposit, and a slowdown in interest from foreign buyers all contribute to a slowing in house-price inflation.
From here, the upside in residential property is less clear, making it more likely that savers and investors will look for new places to find better returns than the 3% interest in a bank account. The catalysts for new conversations about investment are in place.
“There are lots of places in the world where you wouldn’t expect to own a house,” says Ainsley McLaren, an investment markets specialist and Financial Markets Authority board member who spoke to the Listener in a personal capacity as she prepared to take up a new role with Wellington-based funds manager Harbour Asset Management.
“There are some issues around tenancy in New Zealand, to help people get into longterm tenancies where they can actually feel some sense of stability in the place that they live so they can stamp their own mark on it. Short-term tenancy agreements get in the way of people favouring renting.”
But the mood to fix that is growing. Most opposition political parties are promising full-scale tenancy-law reform to remove barriers to long-term renting and make it fairer for tenants. If that starts happening and with house prices likely still to be many times more than the average household income, investing what would have
“There’s an opportunity cost in this concentration of risk in property. It is preventing people from potentially creating real wealth.” Prices in Auckland fell 2.5% over the three months to the end of July.
NZX’s Mark Peterson and Chapman Tripp’s Rachel Dunne.
Financial Markets Authority’s Ainsley McLaren and Commission for Financial Literacy’s David Boyle.