KEY POINTS:
Overseas interest in the New Zealand sharemarket is declining, though foreign ownership remains high by international standards.
A report by Goldman Sachs JBWere shows overseas shareholders holding 37.3 per cent of the market in March, down from 41.4 per cent a year earlier.
That compares with foreign ownership ratios of 27 per cent in Australia and Japan and 14 per cent in the United States.
It continues a declining trend since 1997, when foreign ownership of the market was 60.3 per cent.
The trend does not reflect a waning appetite for New Zealand companies, but rather that the sharemarket intercepts less of the country's corporate life than it used to.
Statistics New Zealand puts foreign direct investment in New Zealand - stakes of 10 per cent or more in listed and unlisted companies - at $53.4 billion as at March 31, up $5.5 billion on a year earlier.
Portfolio investment - stakes of less than 10 per cent - fell slightly from $17.4 billion to $17.1 billion over same period.
The decline in the proportion of the sharemarket owned overseas over the past 10 years has largely been in strategic stakes of 10 per cent or more, rather than portfolio holdings by institutional investors, the Goldman Sachs report says.
Foreign strategic stakes have fallen from 29.4 per cent of the market in 1997 to 6.4 per cent this year.
NZX chief executive Mark Weldon said over that period Telecom's original American shareholders, Bell Atlantic and Ameritech, had sold their stakes, and Carter Holt, which was half-owned by US-based International Paper, had delisted.
Many of the largest listed companies, including Telecom and Fletcher Building, have relatively open share registers.
"And that is good for the market's liquidity," Weldon said.
The sharemarket capitalisation has been growing in dollar terms, but relative to the economy's size it has been going sideways over the past five years, in contrast to the rising trend in other Anglo-Saxon economies."
The ratio of sharemarket capitalisation to gross domestic product remains stuck around 40 per cent, compared with between 120 and 140 per cent in the United States, Australia and Britain.
It reflects the fact that most of the country's largest enterprises are foreign-owned, state-owned or farmer-owned.
But it also reflects a pattern of net outflows of capital from the market, as the money raised by initial public offerings is dwarfed by the money released when companies are taken over or go private.
The Goldman Sachs report shows net outflows of equity capital from the market in four of the past six years, and the prospect of even more if The Warehouse and Auckland Airport are taken out.
Economist Shamubeel Eaqub of Goldman Sachs sees grounds for cautious optimism about the outlook for the market, however.
Investor-friendly changes to the tax treatment of managed funds might channel some investment away from the residential property market.
The launch of the KiwiSaver scheme and the fact that the babyboomers have entered their peak earning years should also make more money available for investment in listed companies either directly or through managed funds.
"It will take time but we are going to see that, as more money flows in, the cost of equity will become sufficiently cheap that more companies will list," Eaqub said.
An ANZ survey of larger unlisted businesses found few owners nearing retirement were contemplating public floats as an exit strategy.
But Eaqub said private equity could play a transitional role between family ownership and public listing.
New Zealand managed funds' share of sharemarket ownership stood at 15.8 per cent last March.
"We will see more competition in that space and fees hopefully lowered as competition stiffens."
Resident stake
* Local ownership of the sharemarket rose last year, continuing the trend of the past 10 years.
* New Zealand ownership of strategic stakes in listed companies has been rising, and foreign ownership declining.
* Tax changes and KiwiSaver may see more savings invested in local equities.
