Market could absorb '30 per cent of super fund'

By ELLEN READ

New research from broker JBWere supports Stock Exchange claims that the local sharemarket could readily absorb 30 per cent of the money to be invested by the Government's new superannuation fund - some $600 million a year.

Exchange head Mark Weldon has called for the fund to put 30 per cent of its money into local shares, rather than the 15 per cent which is typical of local fund managers.

Earlier work by JBWere cast doubt on the practicality of that target, suggesting it would take as much as 350 trading days to invest $300 million in New Zealand shares.

But new research from the broker backs exchange data showing that the required shares could be bought much more quickly, largely because of the new indexes the exchange introduced this month.

When it released details of its new indexes, the exchange included information showing how many trading days it would take an investor to put $1 billion into the local market, assuming their purchases mirrored the composition of a particular index. The answer: 20 days if the investor followed the new NZSE50 index, 35 days if they used the new NZSE Portfolio index, but 46 days following the old NZSE40 index.

JBWere strategist Campbell Millar said the exchange's approach in working out those figures - simply taking a dollar amount to be invested in each company, and looking at the number of shares traded on a typical day - was clearer than the approach originally used by JBWere.

"But it still begs the question of how many days' trading is reasonable before price pressure arises," he said.

There was no easy answer to this, he said. The price effect is "probably somewhere between no effect and a lot of effect".

One way around this would be for the fund to target stocks outside the benchmark index, as Weldon has already suggested.

Weldon has also questioned the role of the guardians who oversee the fund's operations.

He believes the Government has acted appropriately in legally separating itself from investment decisions and putting those in the hands of the guardians.

"The question that needs to be asked is what role are the guardians defining for themselves?

"Are they merely going to check process boxes and in effect allow an American company that does its analysis offshore to invest all of our money?" Weldon asked.

He questioned the use of overseas investment advisers, saying they were naturally skewed against New Zealand investment because of the small size of the local markets.

"Their models are developed in the US and are just plonked down here and they don't work," he said.

A decision on how the fund will divide up its money - including the proportion to be devoted to the local market - is expected by September.