Shares peak in popularity ahead of market tumbling - FMA survey

FMA boss says long-term investors should hold their nerve. Photo / NZME

The portion of New Zealanders who have invested in shares has overtaken the portion who have put money in term deposits, according to a survey commissioned by the Financial Market Authority.

A quarter of the 2,509 people aged 18-plus, surveyed between March 15 and April 11, said they held shares they bought themselves – an increase from 21 per cent last year.

Meanwhile, only 20 per cent held term deposits – a drop from 28 per cent in 2021.

Ten per cent of survey respondents said they owned cryptocurrencies.

Respondents weren't asked to disclose how much they had invested in different asset classes, but FMA chief executive Samantha Barrass believed crypto made up a relatively small part of investors' portfolios.

Reserve Bank data shows New Zealand households on aggregate have for decades had more money invested in shares than in term deposits.

But the value of their investments in shares has spiked in recent years, as low-interest rates have encouraged investment in higher risk/return asset classes. This has sent share prices north.

Nonetheless, as central banks around the world lift interest rates to curb high inflation, asset prices are tumbling.

The cohort of investors who switched from lower to higher-risk investments are now in a volatile market that's in retreat.

Barrass assured investors, "If you have a long-term investment horizon, owning shares and not panicking; holding your nerve in these turbulent times is a sensible thing to do. Our experience over the last 100 years is that markets recover and continue to grow."

Nonetheless, she worried for those with higher-risk investments who can't ride out the wave, and need to cash in their investments for retirement or to buy a home.

She suggested they seek financial advice.

Barrass also questioned whether rising interest rates would, over time, prompt a reversal in the trend seen in the survey of investors trading in term deposits for shares.

Indeed, annual growth in bank deposits held by households has been increasing since November, hitting 7.4 per cent in April, according to the latest Reserve Bank data.

The FMA survey also asked respondents how confident they were in financial markets.

The portion of those who were confident fell to 66 per cent – a number on par with pre-Covid levels, before the portion who expressed confidence rose to 72 per cent in 2021.

Barrass said, "It is no surprise that overall market confidence fell back in the last 12 months, given the volatility we have seen.

"The prolonged impacts of Covid-19 on supply chains, the end of quantitative easing by central banks around the world, and the return of inflation internationally, have significantly shifted market sentiment, both at home and abroad."

Asked whether she was comfortable with the way popular share trading platforms were engaging with their (often amateur) users, and contributing to providing confidence in financial markets, Barrass said the FMA has good relationships with these platforms.

She wouldn't say whether she believed they should be brought into a more formal regulatory regime, but said a strong case would be required for the regulator to expand its remit.

Share trading platforms already have to comply with anti-money laundering rules and need to be part of a dispute resolution scheme.

Barrass said all the engagement the FMA has with these platforms over the support materials they provide users for example, gives it "soft influence".