NZX to target foreign investors and overseas-listed companies with NZ operations

The NZX will roll out the welcome mat for foreign investors and target overseas listed companies with large New Zealand operations in its bid to grow the New Zealand sharemarket.

The stock exchange operator last week released its five year strategy after a six month consultation.

It comes after heavy criticism of the exchange after market darling Xero revealed it would ditch the NZX and consolidate its listing in Australia.

Mark Peterson, NZX chief executive, said its priority was to get back to focusing on its core business of building up its equity, debt and derivatives market.

Peterson said building up the market was about a whole series of things not just one aspect.

"There are whole series that make up a fully-formed market. We want to have the settings right and the pricing right.

"It is building blocks."

He said part of that was about attracting more international participants.

He pointed to the Irish Stock exchange which has more than 20 international participants.

"We have got to find these people. Got to market our market."

Peterson said the irony was that it had been marketing its dairy derivatives trading business around the world but not its other markets.

It will target investors in Australia and Asia as the top priorities.

Foreign ownership levels have risen in recent years but remain below historic levels and other listed markets.

According to JBWere 36 per cent of listed companies was foreign owned in September 2016, up from 33 per cent in June 2013.

But it was as high as 44 per cent in March 2005. It is also well below the Australian market which was 46 per cent in 2016.

Peterson said it did not have a target for the level of foreign ownership. But it was more about getting more international investment flows on a relative basis.

"We have been a very strong country in a world of disruption and noise."

He said in the past foreign investors did not understand what was happening in New Zealand or the companies listed on its exchange and saw investing here as taking on more risk.

But the government's partial privatisation of the power companies had changed that and now there was a broader community of overseas fund managers who understood the New Zealand story and were therefore comfortable investing here.

Peterson said the troubles in Europe and Australia being in the doldrums had made New Zealand very attractive in recent years and he didn't expect that to change.

Australia's economy is picking up and so is the United States but Peterson said that may see fund managers adjust what portion of their money they invest in New Zealand but he didn't expect them to exit the market.

The increasing focus on investors and liquidity went hand in hand with getting more listings, he said.

The exchange has had a very poor year for new equity listings in 2017 with just one new listing.

Peterson said it was obviously looking to do a lot better and believed there were a number of opportunities.

"If we get the settings right and we have the structure to support small businesses then we see opportunities in that area."

Another area was international companies who were listed offshore and had large presences in New Zealand such as travel agent Flight Centre.

"We see a group there."

Market players have often wished the New Zealand arms of the big four Australia banks would list here.

Peterson said the banks were not a priority but he would not rule them out.

The exchange operator also hoped to target small and mid-cap companies.

Many private companies have been snapped up by private equity investors in recent years as cashed up funds have been looking to invest at a good price.

Peterson said those private equity funds also presented an opportunity.

"They are going to have to find an exit strategy at some point."

"When the doors to private equity close then all of a sudden the public option becomes a real option again."

It will also target more listings of managed funds. While the strategy has a five-year view Peterson said he would like to think it would begin to see results next year.

"I would like to think we will see it build out through the course of 2018."

He said investors had been supportive so far.

"The core message we are hearing from the entire market is all about growth - we want to see a growing market in New Zealand."

Peterson admitted he was worried others would follow Xero in exiting the NZX but it would do everything it could to keep companies here.

"Yes of course you worry. But the point is we have got this strategy and we have just got to get on and do it."

The important thing was that it was now focused on its core business building up its equity, debt and derivatives market, he said.

"We are a big believer in this. We will do everything we can to keep business and attract new business at the moment."

Peterson said it was very disappointed with Xero's decision.

"They have had a fantastic run with us."

There were other ways for the company to increase its liquidity than just consolidating its listing in Australia, he said.

"There were other ways to achieve what we think their objectives are.

"We have companies on our market that are also on the ASX100/ASX200.

"There are lots of way to change the listing structure. [You] can manage your capital to increase your register in Australia. Liquidity is really the key to getting into indices."