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BUSINESS | Economy

Foreign ownership of NZX rises in 2017

26 Dec, 2017 5:00am

Quick Read

International interest in a2 and Xero had offset a broader trend which saw offshore investors move away from yield-based equities which dominate the New Zealand market. Picture / Mike Scott.

Foreign ownership of the New Zealand stockmarket rose in 2017, according to research by wealth manager JBWere.

The finance firm's annual Equity Ownership Survey found offshore investors pushed foreign ownership to 37.9 per cent from 36.3 per cent in 2016. That's highest level since 2009.

But the rise was largely driven by "the remarkable uptake of both a2 milk and Xero," JBWere head of NZ equities Rickey Ward notes.

The impact of those two was so large that if they were excluded there would have been a 0.6 per cent decrease in offshore ownership.

International interest in a2 and Xero had offset a broader trend which saw offshore investors move away from the kind of yield-based equities which dominate the New Zealand market, Ward said.

In other words, as risk aversion slides around the world the appetite for low-growth stocks with "bond-like qualities" was diminishing.

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JBWere 2017 Equity Ownership Survey (PDF)JBWere 2017 Equity Ownership Survey (Text

Of 65 companies included the survey, some 14 saw foreign ownership fall by more than one per cent, 19 saw an increase of more than one per cent and the rest were largely unchanged.

"Aside from the remarkable level of traction that a2 Milk and Xero obtained during the year from foreign investors, a handful of large caps that had fallen out of favour with local investors due to poor performance also saw a modest increase in offshore ownership," Ward said.

The level of foreign ownership of the market has risen for two years now after falling from a peak of 44 per cent in 2005 to lows of around 33 per cent in 2014 and 2015.

By international standards the New Zealand market sits between the US and Japan (15 per cent and 30 per cent foreign owned, respectively) and Australia which is 50 per cent foreign owned.

The other big change in this year's survey was a four per cent rise in the ratio of the total market capitalisation to GDP.

The New Zealand market's capitalisation now sits at 46 per cent of annual GDP. At $122 billion, it was the highest level since 2000 and significantly above the historic average of 39 per cent of GDP.

That was likely to take a hit next year with Xero's delisting Ward said.

New Zealand's market value to GDP ratio is low by international standards. It sits at 91 per cent in Australia and 130 per cent in the US.

The survey also notes that initial public offering (IPO) activity was subdued in 2017 with Oceania Healthcare being the only company to come to market.

The level of IPO activity was the lowest since the GFC, Ward said.

Despite a supportive environment with considerable market momentum over the past few years the outlook also looked quiet for 2018 with Vodafone NZ being the only major potential float on the horizon.