Three factors are converging to give the local market a material boost, writes Herald Business Editor Liam Dann
Writing about New Zealand markets can sometimes be a cheerless task. Too often it involves talking about what might be done to encourage investors and bolster dwindling local listings on the NZX.
But despite some of the toughest economic times in a generation we finally have some good reasons for hope that the local market has a period good strength and growth ahead of it.
There are three factors, that feel like they have been on the horizon for years, but which are now converging in away which should provide a material boost. They are:
* The new Financial Markets Authority (FMA)
* KiwiSaver reaching critical mass
* Partial float of state assets
Let's start with the FMA which kicked in to life just a week ago. It comes almost five years after the collapse of the first finance companies and three years after the peak of the global financial crisis, but it at least it is here at last. After all the investor angst and fallout, we have finally reformed our financial regulations and put an institution in place that may actually have some teeth.
This - as was so astutely recognised by Rob Cameron and his team on the Capital Markets Taskforce - is the first step on the road to instilling the public with confidence in the investment sector.
If you can do that you increase the comfort levels around putting money into a market. You can start to grow New Zealand's capital pool for the benefit of the investors and the wider wage-earning public who benefit as companies expand and better job opportunities are created.
Already the FMA has wielded its new powers to put on notice those such as Bernard Whimp who make low-ball share offers targeting unsophisticated investors.
It is a promising start. Investors will also be looking to the regulator to take on potentially difficult legal cases against those behind failed finance companies and to take a more rigorous approach to other share price spikes that hint at insider trading.
Another big lift the markets are beginning to feel is the KiwiSaver effect.
Okay, the savings scheme has been around for a few years now. But it is only just starting to hit a critical mass - not just in the number of investors but in the amount each investor now has at stake in the scheme.
As of March membership was at 1,679,442 and total funds had topped $8 billion.
A lot of that won't be in the local market of course.
The tendency of New Zealanders to stick with default funds means much will be invested in cash, for example - but even if just a quarter of the total figure was invested in local stocks it represents a big chunk of change relative to the size of the NZX with a total market capitalisation of just $59 billion.
Over the next few years the relative importance of KiwiSaver to the local market is likely to grow dramatically.
Likewise its significance in the lives of those who belong to the scheme will loom larger as the balance of their funds under management starts to hits tens of thousands of dollars and more.
When people start to see serious money on the account statements they receive from their provider they will certainly start to pay more attention to their investment.
With some public education and the assurance of a fairer playing field that the FMA should bring, those investors might be convinced to look more closely at the investment options available beyond the default funds.
Despite KiwiSaver numbers approaching two million there is no reason for complacency.
The goal for the Government should be to get every non-retired New Zealander signed up - youngsters included.
With that in mind it might be wise for the powers that be to look twice at cutting KiwiSaver incentives as a means to balance the budget. It is the nation's private debt levels which are the real worry after all.
If we can't have a compulsory savings scheme - despite the evidence of its success just across the Tasman - then at least we should stick at what we do have to promote KiwiSaver.
Creating investor demand is a big step forward but only does half the job. Something needs to be done on the supply side to ensure there is a home for this growing pool of capital.
It has been clear for some time now that occasional listing of a promising local retailer or tech company won't do the trick.
What the market needs is one or more of New Zealand's many unlisted giants to come on board.
There were high hopes that Fonterra might consider some kind of partial listing but that seems to be on hold for the foreseeable future.
Likewise there seems little chance of other co-operative groups like Silver Fern Farms or Zespri heading down that path in this generation.
So that leaves the state-owned enterprises.
The Government has said it will proceed with the partial float of state assets. That's helpful as a short term cash injection for the state coffers. But more importantly it will boost capital markets.
That in itself is not an unreasonable reason for considering the move.
With measures in place to create "kiwishare" style guarantees of certain levels of local ownership, the opportunity to invest in the local power company as well as the national airline will greatly enhance public interest in the stock market and again enhance the savings culture of the nation. So that's the good news.
As always the local market faces a big challenge to retain listings in the face of international takeover offers.
As merger and acquisition activity picks up, local investors will again be targeted by cashed-up companies from Australia, the US and China.
Lets hope we can avoid the fire-sale mentality of previous economic cycles. But those offers and the departure of good companies are an inevitable part of that cycle. It is up to us to develop strategies to ensure the market retains depth regardless.
Finally, it was encouraging to see the International Funds Services Development Group report back on some promising prospects for building a global financial services hub in New Zealand.
As regards tax structure and regulatory rules we are apparently almost there in terms of creating the right environment for a financial services sector that could attract foreign capital and generate national earnings of up to $1 billion a year.
Yet somehow it seems hard to believe the world's investors and institutions will be queuing to channel funds through New Zealand on that basis alone.
To make it happen we will need to sell the world on the idea that this country is a financial centre of excellence.
The best proof we can offer for this is to point to a growing, thriving capital market. We a need to have confidence in our markets before we can expect the rest of the world to.
