Share Club #5—Investing in New Zealand

Recently, we launched the ability to invest in companies and exchange-traded funds directly on the NZX. What better way to celebrate this than to get a group of people together to discuss investing in New Zealand!

On 31 July, we headed to the NZX in Wellington to host a panel discussion about investing in New Zealand. Despite galeforce winds and horizontal rain, it was a full house, with our biggest ever audience tuning in to the live stream!

The panel was hosted by Linda Clark, a Partner at Kensington Swan and once a radio and television journo. Joining her was Bernard Hickey (financial commentator and Managing Editor at Newsroom Pro), Phillippa Harford (CFO at Infratil), Brooke Roberts (CEO at Sharesies), and Mark Peterson (CEO at the NZX).

Why invest in NZ?

This was the big question for the evening. We all have a part to play in the New Zealand economy, and by investing in NZ based companies, we’re helping to grow the country, create jobs, and generally make an impact.

New Zealand’s over-reliance on investment in property was talked about. Not many people know that the returns from the top 50 NZ companies have outperformed the return on property investment, even compared to the Auckland housing market!

Choosing a company to invest in

Before you invest in a company, you need to understand the motivations and purpose of the company. What’s their long-term view? Where do they invest to give returns to their shareholders? Infratil, for example, has obligations to the general shareholders who expect a return. They also need to ensure bondholders get a return on their investment, and that any bank who finances growth can be confident that loans are repaid.

Your motivation to invest is important. An older investor might be looking for high returns, or high dividends as a way to generate income in their retirement. A younger investor might look at a much longer timeframe and be more interested in the environmental and social behaviour of a company.

As a new investor, the best thing to do might be to invest in a company that matches your values. Sometimes, instead of trying to influence the values of a company by getting involved as an investor, you can have more influence by not investing in that company. Different investors have different approaches.

Public companies recognise that you need to look after their community and the environment, as well as the shareholders. Phillippa talked about companies needing to set out a pathway for their investing strategy so that shareholders know what they are putting their money into. This, along with meeting all the regulatory obligations, takes a lot of effort. Shareholders expect a certain level of transparency and communication from publicly listed companies. The NZX is there to set a minimum bar for this. Before investing, you should read these comms to help you understand the business’ direction, and then your reasons for investing in that company.

How does a company get listed on the NZX?

The panel talked about the conditions that need to be met to become a listed company—things like two to three years of audited accounts, and at least a $10M valuation. The scale of a company might prevent a company from listing. You need to be big enough to have a regulatory framework in place (disclosures and communications), as well as independent board members. You also need to adopt continuous disclosure of decision-making, which can take a lot of resources and effort.

As New Zealand grows, the capital market needs to grow as well. In New Zealand, the market capitalisation (the value of all the publicly listed companies in NZ) represents around 55% of the Gross Domestic Product (GDP—the total value of all products and services produced in a specific timeframe) meaning our stock market valuation is undervalued.

The ASX and the US market is often more than 100% of GDP, which means their market is probably overvalued. NZ’s ratio is low because we are, Mark Peterson says, a young economy, with a lot of cooperatively owned companies (they’d find it difficult to list because of their structure) and we have a lot of agriculturally driven companies. Cannasouth, who listed on the NZX in July 2019, was the first to list in nearly two years! But there has been an increase in enquiries from companies wanting to list, and he says the pipeline for new listings is looking positive.

The wrap-up

There’s a heck of a lot more detail in the video but the main takeaways are that investors should keep a diversified portfolio, and do at least some research on the companies they want to invest in. Invest in companies that reflect your values or your needs at the time, depending on your age and appetite for risk.

Ok, now for the legal bit

Investing involves risk. You aren’t guaranteed to make money, and you might lose the money you start with. We don’t provide personalised advice or recommendations. Any information we provide is general only and current at the time written.