The mixed-ownership model has contributed to a 'significant up-tick' in sharemarket activity.

One of the key architects of the Government's state asset sale programme says New Zealand's capital markets are sitting on a solid foundation following the sell-down, which has driven increased interest in New Zealand equities both here and overseas.

Rob Cameron, the executive chairman of Wellington investment bank Cameron Partners, who headed the Capital Markets Taskforce that recommended the sales in 2009, says developing a mixed ownership model through the listings of Mighty River Power, Meridian Energy and Genesis - as well as a block sale of already listed Air New Zealand - has resulted in investors having "much better choices".

"The way I look at it is from the point of view of the capital markets," Cameron says. "The Capital Markets Taskforce showed it [the market] didn't serve retail investors' needs particularly well. There were quite big gaps in the sort of products offered, particularly substantial lower-risk investments." He says the asset sale programme has also been a "big heads-up for overseas investors".

It is "neither here nor there" that the Government didn't quite reach the upper end of its revised target of raising $4.6 billion to $5 billion ($4.67 billion was raised) out of the sales, Cameron adds. "There's 115,000 new retail investors registered in this, which is significant as a proportion of our population and there's very little doubt that if the Government had chosen to just auction off the shares to all comers internationally it could have got higher prices but it would have had much less impact on our capital market and particularly the participation of retail punters."


Shares in Meridian and Genesis have risen well above the prices they were listed at, while Mighty River Power shares - which listed at $2.50 - were trading at $2.33 on Monday after falling as low as $1.95 in January.

Air NZ shares have gained ground on the price they were sold at in the November block sale. Brett Shepherd, chief executive of investment banking at Deutsche Craigs, says 2013 was a "watershed year" for New Zealand's capital markets.

"Because there was more product [available] we got more international institutions being interested, which created greater liquidity in the New Zealand marketplace," Shepherd says. "The platform from last year - both the scale of what took place which is unprecedented and the quality of product across the board - just resulted in greater international interest across the marketplace."

Cameron says having companies like Genesis and Meridian on the market has "filled a hole".

"In terms of giving New Zealand bigger, deeper capital markets and in terms of giving investors better choices, this has been very successful," he says. "The MOM model has undoubtedly contributed to a significant up-tick in trades that we've seen - about 30 per cent over the last year - and the environment it's creating for IPOs [initial public offers] more generally."

NZX chief executive Tim Bennett is bullish about the prospects for new sharemarket listings in the year ahead.

He says about 40 companies are mulling listings and up to eight have taken the next step and appointed advisers - a good indication of how serious they are about going public.

More than $7 billion of new capital was listed in 2013 through 10 New Zealand IPOS, while an additional $5.7 billion was deployed into the market via secondary capital raisings and sell-downs by strategic investors.


Technology listings dominated the smaller end of the IPO market last year through the listings of SLI Systems, GeoOP, Wynyard Group and Snakk Media.

Bennett says firms from a broad range of sectors have expressed an interest in floating this year, including "more traditional businesses where technology is not at the forefront. We're particularly pleased by the diversity of companies that are thinking about listing."

Private training provider Intueri Education Group will raise as much as $234 million in a dual NZX/ASX float this month.

Intueri, being spun out of its Australian-listed parent Arowana International, is expected to become New Zealand's biggest private training establishment - by domestic students - with 6000 local enrolments and a further 1000 international students each year, across 26 locations. It also owns half of Online Courses Australia.

Meanwhile, the $300 million float of Hirepool - New Zealand's biggest equipment rental business - will take place during the first half of the year.

Technology companies including Eroad and Triplejump have indicated they may list, while there has also been speculation that Scales Corporation, a Christchurch-based fruit and vegetable marketer, is preparing for a sharemarket float.

Bennett says the NZX's new Growth Market, designed to provide a cheaper and lower compliance market for small and medium-sized businesses, is expected to be up-and-running by the middle of the year.

It will have website separate from the main NZX site and investors who want to take part will have to certify they have read and accepted a risk warning before investing.

Instead of a full prospectus, companies will be required to prepare a listing document, which includes projections against key operating milestones, but will not have to forecast financial information.

The NZX will also begin offering equity derivatives on June 16.

Such products, which are common overseas but haven't been available in New Zealand for many years, give market participants such as fund managers a tool for hedging risk.

Futures contracts will trade off the NZX20 index, which was launched in 2012.

The stock exchange is also planning to launch single-stock options, says Bennett.

Salt Funds Management managing director Paul Harrison says the unavailability of equity derivatives has been a "glaring absence" in the New Zealand market.

"It's an important tool that's available to fund managers in most markets," Harrison says.

Another major development has been the Financial Markets Conduct Act, which came into force last month and will bring in changes such as simplified disclosure statements and reduced compliance requirements around capital raisings, including equity crowd-funding.

The act was partly based on the recommendations of the Capital Markets Taskforce and Cameron says he's pleased with the outcome.

"The devil's always in the detail and there's a bit more to go," he says. "It [the new legislation] is framed much better and is much more coherent and cohesive in the way it applies and I think it should give much more certainty and predictability to capital market participants."

Many technology stocks have had a bumpy ride over the past couple of months and Deutsche Craigs' Shepherd says he expects investors to be more "discerning" about tech investments following the recent volatility.

Stocks including New Zealand online accounting systems developer Xero and Dunedin-based cancer diagnosis provider Pacific Edge have been knocked about as investors across the globe re-evaluate growth-oriented equities whose valuations are often based on future profit prospects rather than current earnings.

Shares in Xero, for example, opened at $31.95 this week - almost 30 per cent below the all-time high of $44.98 they reached in March.

Grant Williamson, of sharebrokers Hamilton Hindin Greene, says he expects volatility around US tech stocks to continue, which will in turn flow on to NZX-listed technology shares.

"I wouldn't call it a bubble, but I think there was a little bit too much investor hype in that sector," Williamson says.

"With any sector that performs extremely well, when profit taking comes it comes in pretty big waves."

Harbour Asset Management managing director Andrew Bascand says tech sector volatility is elevated but "not extraordinary".

"For instance the US internet Index has volatility over the last month of around 35 per cent, compared to the peak [over the last three years] of 58 per cent - the US biotech index is similar," says Bascand.

"Overall US equity volatility is actually lower than the average of the last 3 years.

"It is just that commentators notice downside volatility more than upside risk."

Electricity stocks such as Meridian and Mighty River Power could be affected by the political polls as the September 20 election approaches.

Labour and the Green Party have said they will introduce tough new regulation on the sector if they take power.

The opposition parties want to create a single, state-owned power buyer and a restructured pricing model to eliminate what they say are excessive power company profits and pass savings on to consumers through cheaper electricity prices.

"I think the market's base case is a National-led government so any likelihood of a Labour-Greens government will likely see weakness in these share prices as the market is still concerned that they will attempt to bring in NZ Power and reduce the profitability of the industry," says Harrison, of Salt Funds Management.

He says the market is focused on earnings growth this year.

"The market is priced on high PE [price earnings] multiples reflecting low interest rates but also expectations of earnings growing as the economic pick-up translates into revenue and profit growth."

Bascand says that though the New Zealand economy is seeing strong growth, company earnings have only bounced back "modestly"from their lows.

"The market is anticipating a lot more."

Bascand says this country's equity market is on a "heady valuation" relative to history with a current price earnings multiple of 17.7 times next year's expected earnings.

"That is about 25 per cent above the average of the last eight years and 21 per cent higher than the current Australia PE multiple," he says.

"On a longer term basis, however, we have seen higher valuations than seen today, so there is still headroom for the market to move higher."