China's Great Wall of capital controls is expected to crumble over the next few years, potentially releasing trillions of dollars into global financial markets. Photo / Kenny Rodger
What would happen if Chinese retail investors got a sudden taste for New Zealand stocks?
Until recently that question might have seemed a little preposterous.
Concerns about the risk of manipulation in China's sharemarkets, plus a predisposition for tangible assets like property, meant many Chinese investors had little interest in equities.
Also, strict capital controls can make getting cash out of the country challenging.
Things are changing, however.
Last year Chinese investors began expressing a bullish appetite for stocks.
Monetary easing and a downturn in that country's property market has been pushing investors towards shares, while margin trading - borrowing some of the cash required for a transaction from a broker - has also helped fuel the market frenzy.
The Shanghai Composite Index has gained more than 80 per cent since early November.
Meanwhile, a trading link between the Hong Kong and Shanghai stock exchanges, which launched last year, means mainlanders can now invest in companies listed on the former British territory's exchange.
Southbound (Shanghai to Hong Kong) demand for the scheme was tepid until earlier this month when, en-masse, Chinese cash began flooding across the border.
Hong Kong's Hang Seng index has gained about 13 per cent since the end of March.
Great Wall to fall?
For now, capital controls put the NZX and other foreign sharemarkets out of reach for many Chinese investors.
But in October China's central bank outlined a scheme that will allow its nationals to invest in foreign stocks, as well as overseas property.
No timing was provided for the scheme's launch, nor any indication given of its size.
However, there are expectations that China's Great Wall of capital controls will crumble over the next few years, potentially releasing trillions of dollars into global financial markets.
Investors shifted their focus to Hong Kong after mainland stocks became expensive as a result of their prolonged rally.
If they end up with more options further afield, where might they look next?
As we all know, New Zealand is already very much on China's radar when it comes to foreign investment.
Given the impact sudden Chinese demand has had on Hong Kong's market this month, imagine the effect it could have on our little exchange.
Fairer punishment
NZX is floating the idea of imposing financial penalties on directors and management responsible for breaches of listing rules.
This is a positive development for investors, as it is companies - and therefore shareholders - who presently foot the bill when the NZ Markets Disciplinary Tribunal pings issuers for wrongdoing.
For example, investment firm Pyne Gould Corporation was publicly censured and fined $50,000, plus costs, in January over delays with its annual report.
That followed the $8000 fine the company, whose shares closed down 1c at 33c last night, copped in November for failing to have two resident New Zealand directors.
And in September Diligent Board Member Services agreed to be censured by the NZ Markets Disciplinary Tribunal and pay $100,000 to the NZX's Discipline Fund over the late filing of earnings reports.
It seems unfair that shareholders who play no part in such breaches should have to fund the payment of penalties.
In a discussion document released this week, NZX said it had received feedback that suggested it could be appropriate for the tribunal - which deals with matters referred to it by NZX - to impose financial penalties on directors and officers.
However, NZX said there were no specific obligations for board members and management under the current rules, and that amendments to create "enforceable obligations" would be required if penalties were to be imposed.
And changes to the tribunal's rules and processes would be required to allow individuals facing penalties to properly defend themselves, NZX said.
The exchange operator also warned that a personal liability regime could "act as a disincentive" for participating in the management and governance of listed companies.
NZX is seeking submissions on the discussion document.
Story telling
Diligent's new chief executive is keen to increase the technology firm's profile with North American investors.
Brian Stafford, who took the helm of the US-headquartered, NZX-listed company this month, reckons the developer of cloud-based software used by board directors has a great story to tell. "We will go out and meet with more investors in the US, which we have historically not done, and tell them more about the business and more about the story," Manhattan-based Stafford told Stock Takes.
About half of the company's shareholders are understood to be based in New Zealand.
But unlike fellow NZX-listed software developer Xero, Diligent doesn't have any plans for a secondary listing in the US, Stafford said.
Xero has been eyeing a Nasdaq listing for some time.
Diligent shares, which have gained 26 per cent over the past year, closed down 5c at $5.75 last night.
Capital push
Mobile payment technology developer Pushpay has announced plans to raise $13.8 million in growth capital from New Zealand-based shareholders.
The NZAX-listed firm, whose meteoric share price rise was covered in last week's Stock Takes, is offering one new ordinary share for every 14 shares already held at $3.85 apiece, a 15 per cent discount to the stock's $4.55 opening price yesterday.
Pushpay shares have gained more than 350 per cent since the company listed at $1 in August last year.
It has developed a smartphone app targeted largely at churches for gathering donations and is particularly focused on the US faith sector.
Pushpay, which is forecasting a more than doubling in customer numbers to over 2000 merchants in the six months to September 30, said it was likely to raise up to $10 million from US-based venture capital funds before the end of October.
It has also applied to shift its listing to the NZX main board.
Interests associated with the Huljich and Bhatnagar families, which combined own about 35 per cent of Pushpay, will take up their full allocation in the rights issue.
Investors are waiting for next week's pivotal interest rate decision.