Financial Markets Authority (FMA) chief executive Rob Everett has welcomed the rising popularity of online share trading platforms, but he says first-time investors need to be cautious while markets continue to run hot.
The local S&P/NZX50 index has fallen since reaching a record high in January but it remains strong, relative to history.
On Friday, Wall Street's the S&P500 index closed at a record for the seventh consecutive trading session, its longest record-setting streak since 1997.
According to an FMA survey, more and more Kiwis are making use of online share trading platforms.
The survey also said 72 per cent of investors were confident in New Zealand's financial markets, up from 66 per cent in 2020.
Of those respondents who bought shares themselves, six out of 10 used platforms such as Sharesies, InvestNow, or Hatch.
Those who used an online platform to buy their shares were significantly more likely to be aged between 25-39 years, in full-time employment, and have an annual personal income of $100,000 or more.
"These investors tend to have high confidence in the financial markets and say their confidence has increased over the last year," the FMA said.
Although the broad types of investments held by investors hasn't shifted significantly over recent surveys, in the last three years term deposits have dwindled from 34 per cent to 28 per cent, while shares rose from 17 per cent to 21 per cent.
"This aligns closely with the rise of DIY, or fractional, digital share investing over the last few years, with 60 per cent of share investors now buying shares through these platforms," the FMA said.
Everett told the Herald he was "relatively happy" with overall the confidence level shown but sounded a note of caution about rapidly rising share markets, which - aside from last year's Covid-driven meltdown - have been rallying over the last decade.
"They (markets) go up and go down over time and people need to be comfortable with the risk that that poses to them," Everett said.
"If people are just dabbling and having a bit of fun, we would not want to get in the way of that."
Everett noted that the world's central banks were trying to condition the markets to be thinking about what interest rate rises will look like.
"They (central banks) are right to tread carefully, but clearly that is a direction that things are going to have to go in.
"It's just a question of pace."
On online trading platforms, Everett said: "It changes the game somewhat, both in terms of how markets are behaving and the approach that some of those people will bring to their investing, which might be different to those of the old school investor.
"I think it's a really good thing that more people can get directly involved and in a very straightforward way, so I see it as a net positive.
"But there is always that undercurrent of trying to be sure that people who are just dabbling, or who are doing it for the first time, are aware of the basic rules around investing, such as being thoughtful about their capacity for loss," he said.
"I'm always reluctant to pour cold water on something that wanted to see, which was more people engaging with the stock market and with investment," he said.
Everett noted that share markets here and around the world had been aided by extremely low interest rates, with investors seeking out stocks as substitute for fixed interest investments.
"I worry the whole time I have been at the FMA (since 2014) that we are in a period of sustained asset price bubble," he said.
"It's all very well for us to welcome the shift into shares and share-based investments, but there needs to be a note of warning that we are 10 years into a really sizeable bubble and that the world is facing a lot of uncertainty.
"And we are beginning to see the spectre of rising interest rates again, when only a year ago we were calling on the industry to make sure that they were prepared to negative interest rates," said Everett, who is due to leave the FMA towards the end of this year.
"You have to have a long term view and be comfortable with the risk."
In a separate survey, Chartered Accountants Australia and New Zealand (CA ANZ) said
over eight in 10 investors remained confident in New Zealand's capital markets, and were increasingly positive about international markets.
The survey of 500 New Zealand retail investors found that confidence in both New Zealand capital markets (86 per cent) and NZX-listed companies (86 per cent was greater than pre-pandemic levels.