Retail investors take flight from NZ sharemarket

An analysis of ownership of the New Zealand sharemarket shows retail investors are bailing out while the proportion held by managed funds has grown strongly.

The analysis by Goldman Sachs JBWere also finds foreign ownership of the New Zealand equity market has reached a plateau - just under 40 per cent - after a sharp decline since the mid-1990s.

Goldman Sachs economist Bernard Doyle said there were signs of structural changes to ownership of the market, worth $53 billion in total.

The survey for the June quarter of 2009 compares figures to the March quarter of 2007.

Doyle said the managed funds share of the market had jumped from 15.8 per cent to to 19.1 per cent, moving out of the 14 per cent to 16 per cent range of the last decade.

This was because of a combination of retail investors opting for tax favourable PIE schemes and the impact of KiwiSaver.

"These together are all starting to make a difference. The flipside there is the retail ownership of the market has come down a bit to what is the lowest level since 2001."

Doyle said the flight by retail investors was not a surprise given the attraction of offshore markets when the kiwi dollar was at very high levels and the battering shares took last year and for the first part of this year.

Between 2007 and this year the percentage of retail investors fell from 28.4 per cent to 21.6 per cent.

"There are some structural things going on under the bonnet there."

Foreign ownership of New Zealand listed companies was flat at 39 per cent, down from 39.1 per cent in 2007 and far from the 60.3 per cent level found in the first survey in 1997.

"The key question is whether there remains a structural decline in levels of foreign ownership in the New Zealand market."

The analysis found the largest 10 stocks accounted for more than 80 per cent of foreign ownership and contributed 1 per cent less to Goldman Sachs JBWere's market estimate than in the 2007 survey.

Among the the top 10, Auckland International Airport saw an increase in local ownership as Infratil and the NZ Superannuation fund increased their stakes, while there were modest increases in overseas ownership of Fletcher Building and SkyCity during the June quarter.

Just 12 per cent of United States equities are foreign owned and the figure for Japan is 24 per cent.

"In an international context, foreign ownership of the New Zealand market is relatively high, though similar with Australia."

Doyle said early this year there had been revived interest from overseas investors although the strong kiwi was now deterring some.

"Some offshore investors may be finding the currency becoming a little more of an issue for them but the important caveat there is our marginal offshore investor is out of Australia so they'll be fairly relaxed because the cross is where it is."

The size of New Zealand's equity market relative to GDP is less than a third of that in Australia.

Factors contributing to that included the dearth of big new listings (the last over $500 million was Vector in 2005), few listed financial and agricultural companies, the commitment by New Zealanders to residential property investment and public ownership of assets usually held in the private sector, such as Air New Zealand and state-owned power companies.