Capital Markets: Rising appetite for NZ on the ASX

New Zealand-founded Xero achieved “unicorn” status on the ASX as a technology company with a market cap of over $1 billion. Photo / 123RF

The Australian Securities Exchange (ASX) has been pursuing a strategy over the past five years to increase the diversity of stocks available.

Diversification is a central tenet of well-balanced portfolios, and that means companies in the technology and life science sectors are in high demand. Institutional investors, in particular, seek additional investment prospects beyond the long-standing dominance of mining and financial firms on the ASX.

Blair Harrison, head of New Zealand Listings at ASX, says investors are also looking for diversity in geography, and for that reason they also like to see New Zealand companies in the mix.

New Zealand’s burgeoning tech sector already has a formidable presence on the ASX.

Until recently, 10 of the 65 New Zealand companies listed on the ASX were technology companies, two of which were included in the ASX All Tech Index (earlier this month church donation company Pushpay was delisted after being sold to a consortium linked to a Melbourne-based private equity firm).

Xero has achieved “unicorn” status on the ASX as a technology company with a valuation or market cap of over $1 billion. With a market capitalisation of more than $10b, the New Zealand-founded accounting software company is now one of the largest on the ASX, the fifth largest company by market capitalisation in the All Tech index and a constituent of the ASX 50.

Harrison says from an investor standpoint, New Zealand tech companies are well respected globally.

“They tend to exhibit an entrepreneurial approach, demonstrate good governance, and possess a global mindset right from the outset,” he explains.

“This is largely due to the challenge of geographic distance. Being a country that is far away, these companies are aware they must target international markets and adopt an international perspective from the very beginning, which companies in Australia don’t necessarily have to do.”

The large investment community and significant number of companies in Australia mean that New Zealand technology stocks have greater scope to be covered by analysts. The ASX has close to 250 technology companies and around 200 companies that come under the umbrella of life sciences.

Harrison explains that this means that Australia has fund managers, researchers and brokers who can specialise and have greater familiarity with the sectors.

“Rather than one analyst who covers a range of sectors — from industrial to consumer products to technology — you can have a team of people focused on a particular sector, which means they have a very good understanding of how a company is performing.”

Blair Harrison, head of New Zealand Listings at ASX. Photo / Supplied

That research, in turn, raises the awareness of emerging New Zealand companies among Australian and international fund managers.

These companies can also be compared against similar ASX-listed healthcare and technology companies, which helps analysts determine company valuations and provides economies of scale in research.

Harrison says there is a robust pipeline of technology companies looking to list, and he expects to see New Zealand tech continue to thrive on the ASX over the next few years. This is driven by investor appetite, both from Australia and New Zealand, and further afield.

Beyond tech, other New Zealand sectors that are in demand from the ASX investor base are infrastructure stocks including airports and ports which are not common on the ASX. New Zealand’s aged-care sector is another of interest.

Looking ahead, Harrison says the scale of superannuation funds across Australia and New Zealand will have an impact on investment choices and companies that come to the stock exchange.

By 2041, the total superannuation assets of Australia and New Zealand combined are expected to approach A$10 trillion.

“We know that a lot of that superannuation fund money goes into the stock market,” he says. “That means there will be a huge demand for companies to come to the ASX, and in particular, demand for companies that meet the attributes that the demographic are looking to invest in.”

He points to the rise in economies focused on climate change and the future of food as an example of this.

“ESG is having a huge impact because investors are becoming more powerful. We are all becoming investors — either directly or indirectly — through our superannuation, which is growing exponentially.”

Listings down last year, but higher activity in follow-on offerings

When volatility and uncertainty sweep across global economies, the volume and value of initial public offerings (IPOs) on share markets fall. IPOs were down around the world in 2022, attributable to volatility in the markets brought on by significant macroeconomic events, including Russia’s invasion of Ukraine and surging inflation.

While this was also true for Australia, the ASX still managed 107 listings in 2022. Almost all these listings were in mining, particularly for battery materials like lithium, copper, nickel and gold, which are in high demand.

This figure is close to its annual average of around 135 per year, but down from a phenomenal 2021 that saw 241 companies debut on the ASX fuelled by the cash that was injected into the economy.

“We continue to engage with companies and stakeholders in the ecosystem,” says Harrison.

“Those conversations haven’t slowed down at all, and once the level of volatility returns to a normal level, we expect a lot of these listings to come to market.”

The ASX tracks volatility through the S&P/ASX 200 VIX, a real-time volatility index. This enables interpretation of investor sentiment and market expectations. Notably, the ASX tends to witness higher IPO activity when the VIX value falls within the 10-15 zone.

Despite the decrease in listings last year, the ASX saw higher activity in follow-on offerings as ASX-listed companies raised capital. Follow-on offerings, which include placements, rights issues and share purchase plans, can also be used to bring new sophisticated and institutional investors into a share register and help increase liquidity in a company’s shares.

ASX was the top-ranked exchange globally for the volume of follow-on capital offerings in 2022 with 1060. This was more than double the comparable volume on the Nasdaq exchange in the United States, more than triple the volume on the London Stock Exchange and was higher than any exchange in Asia-Pacific.

This is the third consecutive year that ASX has led global rankings for follow-on offerings by volume. By value of follow-on offerings, ASX was the fifth-ranked exchange globally in 2022. More follow-on capital was raised on ASX last year than on the London Stock Exchange or Hong Kong Stock Exchange.

Some industries were hit hard through the pandemic and needed to raise finance to shore up their balance sheets and get through, but Harrison says that other raises were more opportunistic.

“For example, a company might have taken the opportunity to raise capital for an acquisition of a company at a good valuation compared to in 2021 when valuations were very high,” he says.

Blair Harrison

Blair Harrison is the Head of New Zealand Listings at the Australian Securities Exchange (ASX) and heads the ASX New Zealand office, based in Auckland.

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