Growing New Zealand’s Capital Markets 2029: A vision and growth agenda to promote stronger capital markets for all New Zealanders

Published by: Hamish Macdonald, Head of External Relations & General Counsel, NZX Limited Sep 2019

The industry-led review named Capital Markets 2029, initiated by NZX and the Financial Markets Authority (FMA), was designed to deliver a 10-year vision and growth agenda for New Zealand’s capital markets.

Foreign capital is important, with just over half of the New Zealand market held by offshore investors – helping underpin the strong performance over an extended period with the benchmark New Zealand index, the S&P/NZX 50 (Gross), breaking the 10,000 milestone in April 2019 – reflecting strong investor confidence from both local and offshore investors. The New Zealand market is up 267% over the past decade, which equates to an annual return over that period of 13.3% (including both dividends and capital growth).

NZX’s markets performance saw it continue to outperform global peers with the S&P/NZX 50 Gross and Capital indices up 23.2% and 20.0% in 2019 YTD, recovered some losses from the Q4 2018. During the 12 months ending 24 September, the S&P/NZX 50 indices gained 16.3% (gross) or 12.3% (capital). Comparatively over the same period, S&P/ASX 200 increased 13.5% (Gross) and 9.1% (Capital). The S&P 500 only gained 3.1% (Gross) and 1.6% (Capital) and the FTSE 100 declined 2.4%.

While New Zealand’s capital markets have delivered strong returns for investors and performed well in supporting secondary capital raising, new equity listings have remained subdued, and the listed equity market is under developed relative to global peers. NZX has focused on delivering market development initiatives, particularly in the areas of listed funds and debt (including wholesale and green bonds), including completion of the first holistic review of our market’s structure and rule-set in 15 years.

The introduction of a bespoke set of fund rules has significantly reduced the cost of listing for these issuers and we see a strong market development opportunity in this space, with the listing of nine new funds already this year under the updated regime.

With our recent focus on delivering internal initiatives it was also important to step back and consider broader macro issues such as the global trends for fewer listings and factors specific to the New Zealand ecosystem. Capital Markets 2029 brought the capital markets ecosystem together to deliver a common vision and purpose for growing New Zealand’s capital markets. The review was industry led, with support from Government, and took a broad frame of reference, including a strong focus on the listed market and removing actual or perceived impediments to listing.

NZX welcomed the final report released in September 2019. The review involved many people and organisations across New Zealand, as well as offshore investors. The ambition is to grow the market capitalisation of New Zealand’s equity markets as a stronger ratio of New Zealand’s GDP and to maximise the opportunity in those areas where NZX’s markets are performing well or have natural advantages, such as supporting the need for infrastructure investment, green finance and continuing the momentum in our strongly performing debt market.

The independent recommendations are opportune on the 150th anniversary of New Zealand’s Exchange, and at a time when New Zealand is facing the very real capital costs of addressing climate change, and infrastructure investment – alone estimated by the Productivity Commission at NZ$129 billion over the next decade.

The report summarises some of the key trends in New Zealand that could undermine the effectiveness of capital markets and have long-term consequences for the country’s wealth if left unaddressed. These include:

  • A New Zealand superannuation scheme (KiwiSaver) that encourages saving, but fosters investment predominantly in lower growth assets  
  • A large number of New Zealanders who are not actively participating in KiwiSaver
  • A two-tier public market that is working well for the larger companies, but is less liquid and effective for smaller companies, and that needs to attract new listings
  • Private markets that are working well and growing, but not necessarily serving the full range of New Zealand investors, nor the full range of investment stages
  • A sound regulatory regime, with areas which could be improved to assist the flow of capital

The report lists 42 recommendations to unlock stronger capital markets for all New Zealanders of which 18 recommendations have been prioritised. The recommendations canvas topics such as KiwiSaver, regulation, public sector assets and infrastructure, promotion of public markets, tax, new products and the impact of technology.

The report’s recommendations are designed to improve capital markets in one or more of the following ways:

  • Raise the level of individual participation and engagement in capital markets
  • Offer more choice of investment for individuals, both within KiwiSaver and more generally
  • Grow the base of companies that can access the public capital market, reduce the barriers to listing where possible and increase motivation for public companies to remain listed
  • Grow the private capital ecosystem in New Zealand
  • Use the capital markets to fund infrastructure in New Zealand
  • Create greater wealth for New Zealanders.

The report highlights the vital role our capital markets play in supporting the growth and productivity of New Zealand, and reinforces the importance of capital formation within New Zealand. NZX is now focused on working with all participants in the New Zealand eco system to deliver on the recommendations outlined in the report.

Additional background on the review can be found at the following links:

Capital Markets 2029 report and announcement

NZX and FMA announcement in response to release of CM29 report

Press statement from New Zealand’s Minister of Commerce in response to release of the CM29 report

Information on celebrating 150 years of New Zealand’s exchange