Foreign share ownership up
Investment from abroad in the Kiwi market at its highest since 2011, says JBWere
Investors’ worldwide hunt for yield saw foreign ownership of the New Zealand share market increase to 36.3 per cent — its highest point since 2011, say investment specialists JBWere.
Foreign ownership was 32.6 per cent last year, JBWere said in releasing results of its survey, which covered 70 firms accounting for 96 per cent of the S&P/NZX All index.
JBWere said foreign ownership in the New Zealand market remained relatively high compared with many of its developed-market peers.
“This doesn’t altogether surprise us given the New Zealand market consists of a number of high-quality, stable companies that, in many cases, pay attractive dividend yields,” it said.
JBWere, noting the recent rise in world bond yields, said the current high levels of foreign ownership may soon diminish if international bond yields continue to rise in the aftermath of Donald Trump’s success at last month’s US presidential election.
“As at the time of writing, New Zealand equities trade at a 23 per cent premium to global equities, with low interest rates a key driver. Any change here could see our premium eroded,” JBWere said.
In October, for example, a 23 basis point rise in US 10-year Treasury yields saw the equity market weaken by 5.5 per cent, and during November an extra 56 basis point rise in US 10-year Treasury yields saw the NZ market weaken a further 1 per cent.
“Accordingly, further increases in bond yields will likely be a headwind for the New Zealand equity market,” JBWere said.
At the same time, an obvious byproduct of higher bond yields was a more attractive fixed income market, it said.
“Given this, we would not be sur- prised to see further reductions in New Zealand retail investors’ ownership of our market,” it said.
“We also expect that the level of foreign ownership of our market could very well fall in 2017 as the global ‘hunt for yield’ thematic continues to drift out of fashion,” it said.
The most significant driver of the observed rise in foreign ownership was a fall in the proportion of ownership by New Zealand retail investors in favour of offshore managed funds.
JBWere also observed a reduction in ownership by New Zealand managed funds and an increase in New Zealand strategic stakes.
This was a reversal from trends observed over recent years, which saw both retail investors’ and NZ managed funds’ holdings increase.
JBWere said the initial public offer market remained subdued, with just three offers in 2016.
“That said, some further new listings resulting from separations of existing assets shows corporate activity remains alive and well in New Zealand,” it said.
Of the 70 companies surveyed, there were 17 companies that saw a decline in foreign of more than 1 per cent, 28 that saw increases over 1 per cent, and 14 that were recorded as essentially unchanged.
Offshore exits of strategic stakes accounted for some of the reductions in foreign ownership, for example in the case of New Zealand Refining and Metro Performance Glass.
“However, from an overall perspective, we saw a general trend of increased foreign ownership in many of New Zealand’s largest companies, which drove the headline increase,” the JBWere report said.
The New Zealand’s share market now represented 41 per cent of GDP, the highest level since 2000 — but low by world standards.
However, it was up from 37 per cent last year, JBWere said.