NZX boss Tim Bennett doesn't believe the sharemarket is over-valued; he says it is poised for further growth, as Jamie Gray reports

As the benchmark S&P/NZX50 share index heads towards yet another record high, NZX chief executive Tim Bennett says the market is in great shape.

The index built on an already strong 2014 to end last year with a 13 per cent gain.

Concerns about an economic slowdown in China led to convulsions in domestic and world markets in February, but investors seem to have put their worries behind them for now.

"The sharemarket is in great shape," Bennett says. "We have seen, over a number of years, a very strong performance in the index. We are also seeing a lot more interest in the initial public offer (IPO) pipeline this year than last year."

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Globally, 2015 was a slow year for IPOs. In the United States it was the slowest year since 2009 and New Zealand felt the impact of that.

Bennett and investment bankers pointed to the successful listing of Tegel as an important milestone for the market. "In a lot of ways, it (Tegel) was a bellwether and we hope that it will open the IPO window over the next couple of quarters," he says.

The NZX has seen an increase of debt issuance on the local market. "Trading activity in the debt market is up 60 per cent, year on year, so there is obvious investor demand there as well," says Bennett.

He says the NZX launched more exchange traded funds (ETFs) last year and the NZX now has 23. Interest in those products continued to be strong.

Bennett says demand for initial public offers from investors is clearly evident and we are starting to see the pipeline develop. "While we don't think that we will have a spectacular year like we did in 2013/14 -- when the mixed ownership models listed -- clearly there are a lot of investors who are seeking IPOs and so from a sellers' side they are wanting to raise capital to grow their businesses, which is good for the economy.

"We are also seeing foreign investors looking to divest their New Zealand assets and of course we are seeing some private equity investors looking to realise their investments."

"The caveat to all that is that we still live in a volatile world, with two IPOs pulled last year because of market volatility.

"In the next year or two, we expect to see a good mix of New Zealand businesses come to the market in the mid-sized businesses -- in the range of $300 million to $700 million," Bennett says.

As the sharemarket enters another year of very strong gains, analysts fear it is looking overvalued from a price-earnings perspective but Bennett is dismissive.

"It's all relative," Bennett says. "New Zealand is an attractive market. We have got a very strong economy. We have got businesses that are paying relatively high yields and with a good mix of companies to invest in."

The common complaint from fund managers is that not enough IPOs have come to the market to meet investor demand. Bennett does not expect to see the number of new share issues racing away anytime soon.

We have seen, over a number of years, a very strong performance in the index. We are also seeing a lot more interest in the initial public offer (IPO) pipeline this year than last year.

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"By and large, we have seen some quality companies list in New Zealand, and investors who have had a diversified portfolio have done very well out of that, so we are very pleased with what has happened in the market over the last few years," he says.

After the partial privatisations of the big power generators -- Meridian, Mighty River Power and Genesis -- Bennett says big listings in the years ahead would be few and far between.

But in terms of future trends, he expects to see some of the foreign-owned local businesses start to come back to the market.

And Bennett expects to see more of the medium-sized privately held companies -- in the $300 million to $500 million bracket -- coming to the NZ stock market in tip-top shape

New Zealand is an attractive market. We have got a very strong economy. We have businesses that are paying relatively high yields and with a good mix of companies to invest in.market as a way of raising money in order to grow their businesses.

Some market commentators have criticised the NZX for the slow start of its new NXT market but Bennett says he is happy with progress so far.

In the next year or two, we expect to see a good mix of New Zealand businesses come to the market in the mid-sized businesses -- in the range of $300 million to $700 million.

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"The market was designed for smaller high growth corporations and we are pleased with the way that it has developed.

"In the next quarter or two we will see a much closer relationship between NXT and the crowd funded companies, but all that takes time to develop."

Bennett says new markets always take time to evolve.

As an example, the exchange's dairy derivatives operation started six years ago and only started to gain traction in the fourth and fifth years.

"Talk to us in six to 12 months time and we will start to see some real progress there (in the NXT)," he says.

The derivatives side of NZX's operation is relatively small -- representing about $1 million in revenue -- but Bennett says it forms an important part of the overall equation for capital markets.

"All of these systems are part of an ecosystem that we need to build, so you need to add pieces to that ecosystem to really make the capital markets work."

He credits the Government's partial asset sales programme for rekindling investor interest in the sharemarket, which for many had been a no go zone since the travails of the 1987 sharemarket crash.

"Clearly it brought back a lot of investor participation," he says.

"It put the sharemarket back on the map for a lot of investors who had been reluctant to invest since 1987, and at a good yield," Bennett says.

In addition, it put New Zealand back on the map for global investors and raised the country's profile.