BUYING BACK NZ
Our capital rich renaissance
Iwrote in the Herald previously that we were about to enter a period of unparalleled prosperity, due to the rising tide of KiwiSaver savings. So far so good, and in spite of sharemarket valuations and concerns about a 2018 crash, I see no reason to change this long term view.
It’s a very positive future, in many ways.
Whatever the fixed interest and sharemarkets do short term, the long term trend is a very powerful one.
KiwiSaver is slowly changing everything. For a decade now Kiwis have become used to a portion of their salary going into an alternative savings vehicle. This is a critical shift in our savings behaviour.
And, by and large, this change in behaviour has been beneficial for KiwiSaver members. KiwiSaver funds have performed well, untainted by the GFC and market volatility.
With 2.8 million members, KiwiSaver is the most successful financial product in NZ since the chequing account. And with $42 billion already saved, we are starting to see the impact.
KiwiSaver savings are forecast to rise to $200b by 2030. That’s more than our GDP now, and about half of that will be invested in New Zealand. For the first time in my life, New Zealanders will be buying back New Zealand.
Every week, well over $10 million of new KiwiSaver investment flows into our sharemarket, and, by and large, stays here. That last point is critical. Because KiwiSaver funds are locked in until retirement, it’s the perfect way to fund the long term growth of NZ companies.
This is a rising tide of money, rather than a tidal wave. It’s impact is largely unnoticed in the short term, but the combined effects are very powerful long term and necessary to funding our future.
Business needs to get its head around the best use of this money, and provide options for it to invest into. After generations of operating in, and getting used to, a capital-starved environment, NZ companies need to adjust to operating in a capital-richer one. This shift in mindset is critical, because not thinking optimistically risks seeing the money finding better options offshore and active managers in KiwiSaver allocating a higher portion of funds to overseas investments.
A case in point is airports. They’ve been accustomed to lower rates of customer growth and scarce capital for expansion purposes. That’s led to a real shortage of space and capacity, as many passing through Auckland Airport may well experience again this year. Airports are playing catch up with their investments now, and doing a good job of it. But to my mind, they’re still operating with an overly cautious mindset. Auckland Airport is justifiably proud of spending $1m a day on new projects, which is a large number for New Zealand. But with the growth New Zealand will see for quite some time, they might regret not spending $2m a day before too long.
Kiwis are naturally risk averse, and there are some great things about that. But when it comes to large scale investment, we often undercook it. Investing in domestic infrastructure and capacity, however large, is nearly always the right thing to do.
Because KiwiSaver funds are locked in until retirement, it’s the perfect way to fund the long term growth of NZ companies.
There are many examples of this in our history. The infrastructure and state housing boom of the 1930s is a prime example, as are motorways, electricity generation and transmission. With a growing population and tourist demands on infrastructure, it’s hard to get these investments wrong to the point of long-term regret, no matter how expensive they seem at the time. Even our most controversial big spending initiative, Robert Muldoon’s ‘Think Big’, left us with the Clyde Dam, Tiwai Point Aluminium smelter and NZ Steel, all, in hindsight, very good investments for all Kiwis. A capital-rich economy offers so many more opportunities than a capital-starved one. We make a lot of our number 8 wire mentality, and that’s great for innovation, but that’s not always the best way to grow businesses or build our infrastructure. If we’re going to be an R&D rich, tech-savvy, well capitalised economy that can grow faster than our neighbours, we are now in our best position in generations to do so.
As shareholders in NZ’s largest 50 companies on behalf of our members, one of our key messages to management next year will be about thinking more optimistically about long term growth, and investing accordingly. KiwiSaver will help provide the money, and companies will, by and large, invest it wisely.
It feels to me like NZ is about to enter a capital rich renaissance like it’s never seen before. That’s why we should concentrate less on shortterm market movements, and invest even more in our future.