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Foreign ownership of NZ sharemarket hits highest level since 2010

Ownership by local retail investors fell 4%, hitting 23.2%, its lowest level in four years.

Fiona Rotherham
Tue, 06 Dec 2016

Foreign ownership of companies listed on the New Zealand sharemarket has risen to 36.3%, its highest level since June 2010, according to JBWere's Foreign Ownership Survey.

However, ownership by local retail investors fell 4%, hitting 23.2%, its lowest level in four years. Portfolio-style investment also fell.

Bernard Doyle, head of JB Were's investment strategy, said the increase in foreign ownership in recent years has been driven by institutional fund managers hunting for yield in a global low-interest rate environment.

"New Zealand's high dividend yield has been increasingly attractive by doing nothing – staying near 5% – when all other tides have been going out," he said.

A secondary driver of offshore interest has been New Zealand's political stability, notwithstanding yesterday's resignation by Prime Minister John Key. Mr Doyle said New Zealanders regard a change of government as a period of political instability whereas in other countries there are far more fundamental questions being asked of their democracies.

That's evidenced by the stark contrast between the two resignations yesterday of the New Zealand leader and Italian Prime Minister Matteo Renzi.

"Our prime minister left of his own volition, partly because he felt he had achieved a lot of what he set out to achieve whereas the Italian Prime Minister was rolled by his electorate for failing to get constitutional reform through in the middle of a banking crisis with its domestic banks. It's a pretty nice contrast," Mr Doyle said.

Foreign ownership is likely to have peaked though, with the New Zealand sharemarket looking less appealing as international interest rates rise and central bank stimulatory policies diminish, he said. "It will be much harder to stand out for those institutional investors than it has been."

It's not necessarily a bad thing to have a "bit of a breather" as it would have been problematic to continue generating further returns at the rate of the past five years, Mr Doyle said.

The survey showed the run-rate for initial public offers remains subdued, with just three IPOs this year, the same as last year but well down on the 12 in 2014. However, there have been some further new listings from separating existing assets.

New Zealand's equity market capitalisation currently sits at 41% of gross domestic product (GDP), the highest level since 2000. Although still low by international standards, that's a 37% increase on the previous year.

Mr Doyle said along with the increase in offshore interest in high yields, a range of developments has boosted the sharemarket's role in the economy, including the partial privatisation of state-owned enterprises, the rise of KiwiSaver funds, and the NZ Superannuation Fund participating in the market.

Back in 2008, when the figure was closer to 20-25% of GDP, the peer group New Zealand was compared against shifted from development markets to emerging economies, Mr Doyle said.

"We had to get bigger or we were going to struggle for this market to survive," he said. "The selldown of Origin's stake in Contact (Energy) showed this market can now handle that size of transaction whereas even five years ago it would have been a big question mark. It's the role of a sharemarket in the economy to be able to do that sort of thing."


Fiona Rotherham
Tue, 06 Dec 2016
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Foreign ownership of NZ sharemarket hits highest level since 2010