Buoyant investor confidence worries regulator

Rob Everett, chief executive of the Financial Markets Authority. Photo/ Supplied

Buoyant investor confidence has New Zealand's financial regulator worried some investors may be in for a shock if markets fall sharply again or slide back over the next few years.

A survey by the Financial Markets Authority found confidence in New Zealand's financial markets remained similar to last year despite the volatility caused by Covid-19.

Local and global sharemarkets took a dive in March but have since bounced back in what experts have described as the fastest fall and recovery ever seen.

Rob Everett, chief executive of the Financial Markets Authority, said he was initially taken aback by its survey, which was done in May while New Zealand was still in alert level 3.

It found 66 per cent of investors were confident in line with the 65 per cent of investors in a survey carried out at the same time last year.

The proportion of those feeling very confident hit an eight-year high of 10 per cent while those feeling not very confident rose from 16 per cent to 22 per cent.

"On the face of it, it was surprising. But when you look at it from a timing perspective when the survey was open and look at where the NZX was, it had bounced back. New Zealand was also seen to be doing a good job of getting on top of Covid-19 domestically.

"There was a sense of optimism that the worst was over for the markets and for New Zealand."

Everett said that could have been very different if the survey was done in late March or early April when the local and overseas share markets tanked.

"This shows it was a point in time."

But Everett also pointed to commentary around the fact that equity markets do not reflect the strong sense of difficult times to come in the economy.

He said the markets were being driven by the amount of money central banks were pumping in and what governments were doing to prop up economies.

"The market has been robust."

But he said at some point the disconnect would come to an end.

"At some point that gap has to narrow. That will be pretty telling when it happens."

Everett pointed to a number of challenges this year, including the US elections, Brexit and ongoing trade issues between the US and China on top of the global pandemic.

He said the markets could see a long slow descent or something that breaks the bubble and sends the market down sharply.

"It is hard to know whether it will be sudden or whether it will be death by a thousand cuts."

Around 82 per cent of those surveyed have some form of investment with KiwiSaver the most widely held investment, ahead of term deposits.

The survey also found just under half of those questioned had undertaken some sort of investment over the past year ranging from making or considering new investments, to joining or changing KiwiSaver or decreasing their investments.

Of those who made new investments, buying shares (46 per cent) or buying into managed funds (39 per cent) were the most common activities. Around 6 per cent had decreased their investment: 45 per cent withdrew some or all of their investment and 19 per cent sold a residential investment property.

Awareness of the regulator itself stayed similar to last year - up slightly from 35 per cent to 37 per cent and 68 per cent were confident in effective regulation of New Zealand's financial markets.