Elder.
I'm Chelsea Daniels and this is the Front Page, a daily podcast.
Presented by the New Zealand Herald.
The global economy is still recovering from a difficult few years, and New Zealand is not immune. The ENZX fifty has been struggling recently. The recent mini reporting season saw largely disappointing results for many companies and the usual investment opportunities are not delivering in these times of difficulty, though, there are plenty of opportunities for new industries to invest in and different countries for.
New Zealand to look at for trade enzed Me.
Business Editorial Director fran O'Sullivan is covering all these ups and downs in her latest Capital Markets and Investments special. She joins us now on the Front Page to discuss the state of the market. Frand, we all know the global economy is in a bit of a rough spot at the moment. What impact is that having on the capital markets and the investment industry.
Well, I think what we're seeing is, you know, the investment industry is in an interesting, i would say inflection point. There's a very excellent article in the Report by Jamie Gray which looks at what's happening, for instance, with direct share markets versus money that just goes through private equity or directly into companies. You've seen quite a shift from that.
People are in two minds about having exposure of their business to share markets and quarterly reporting that type of thing, particularly in the United States, and so we've seen quite a shift there. The number of publicly listed firms has declined. It's been quite similar in New Zealand, except on the converse side doing a capital raise, you know, like for instance we saw with Auckland Airport when they needed to
raise funds at the time of the pandemic. That was done very quickly, and in that respect, a public market can act quite fast. So it's an interesting time. And against that also you have the rise of fixed interest The current environment means you're getting much more coin for money in the bank or in fixed interest type securities, and so it's shifting around a lot. Until the interest rates declined significantly, I think it will be harder to get markets roaring again.
When we talk about capital markets, is that kind of where people are putting their investments, their money.
Well, in capital markets, it's a very broad term. I mean you're also looking as I said, it's the plethora from money in the bank, it's key we savor, it's fixed interest, it's all sorts of avenues through the likes of particular companies that just aggregate, look after smaller investors, and there's directly in the share markets. So it's a
very broad canvas. You know. If we're looking at New Zealand, we do need a lot of capital and the government has been emphasizing this repetitively that it wants private capital to come into for instance, helping to fund our infrastructure demand over the next little while, and that is quite massive. New Zealand has been posting an infrastructure deficit for a good fifteen years now and it doesn't get any smaller.
In fact, you know, the impact of inflation, supply chain changes, all of that has meant that the cost of replacing infrastructure and building new infrastructure has escalated and we saw that for instance when the prior government was trying to do the light rail project and that expanded in the cost structure. We saw it more recently with Kiwi Rail and the Cook Straight ferries. So there's a big demand
for funds there. One of the things which is quite interesting at this present time is whether we will access Kei we Saver for instance, and the Stock Exchange the nz X has pointed to, you know, their massive amount of funds that have already been aggregated in Kei we Saver in New Zealand and suggestions that if we just had the same amount pro rata as with Australia with their funds coming into infrastructure, that would go a long way.
So this tension between bringing in foreign investment but also making sure that New Zealand investors via their Kei Wei Saver accounts, also have a slice of the action.
Well, I was going to say, is the point of difference with Australia.
Hey, the super fund is enormous and they use it in quite different ways to us.
You know, people look at Australia and saying it's doing much better. Well, the financial sector is always in better shape because they have compulsory super and much more savings to balance out the debt they have. So Australia's economy is usually looking more robust than ours.
Are there any lessons to be learned there?
Well, the big lesson was we were too slow off the mark and so we're looking at you know, the private savings funds that have been masked in Australia through their compulsory superannuation schemes compared to here, where you can still on an opt out basis. Australia, it's a much higher percentage than here. It has operated probably for twenty years ahead of New Zealand. We passed by the opportunity to do this back in the seventies and eighties when we should have, and you know, we re late to
the party. The late Sir Michael Cullen essentially got key we Saver up and running and good on them, but we were very slow and it has hindered the economy. It's hindered the amount of private savings available to people when they retire or to put against building hard assets like housing and homes for themselves along the way. But also we haven't got that private funds coming into the New Zealand market in the degree that we should. Much
of it has invested offshore considerable here. But you know, if I think back to earlier on in the century when we actually had quite an avalanche of funds coming out of Australia to buy up some of our major companies here, and it was funded to a large degree by their savings funds. So you know this is important for capital formation and for growth of our country.
Should we make it compulsory to contribute to key we saver?
Oh?
Yes, absolutely, and it's quite barking that we haven't done so. I mean, this should have been done years ago. You know, this is one area of lass A fair that really in the best interests of the entire population should have been dealt with earlier, because, of course, if you do have substantial private savings, it does lessen the demand on the government and the public funds at a later stage to look after people who haven't looked after themselves on their retirement.
Mark Peterson begs the question how are we going to pay for that?
Which I think is a good one. He's right, isn't it?
For instance, we have a nationwide infrastructure deficit asb he estimates the editor over a trillion dollars. Is it surely time for New Zealand to look at something like public private partnerships.
Yeah, and we have done that in the past, and there have been considerable public private partnerships. I think one of the things to be aware of though, that somebody at the end of the day still has to pay the piper, so you know, it isn't cost free in the sense that typically it might end up either being funded ultimately by taxation or funded by our user pays. And we will see a move to that more in
toll roads, that type of thing, congestion charging. As you know, the government seeks to allow private operators to make a return on their investments, so you know, you can't neglect
that side of it. I think one of the things he has done behind scenes, and Andrew Bailey, the Commerce Minister, went a little way towards talking about it, but it's still very in the development phase is looking at how we make good on the Capital Markets Report, which was done back in twenty nineteen and looked at a range of things about allocating capital and there were lots of ideas and recommendations there and not all of those have
been met by a long way. But one of the issues which is worth exploring in my view, is allowing gen taylors like Mercury, Meridian and Genesis to raise capital themselves without the Crown participating. Crown has forty nine percent of those assets which were partially privatized under the mixed ownership assets program several years ago, back in twenty fourteen. They have grown in value since that time, which is an indication of the discipline of share markets on them
and having to publicly report. But what is interesting is they are going to need more capital to expand and we have a brilliant opportunity right now with you know, is what has been rather euphemistically talked about New Zealand being a green battery for the world, in other words, producing renewable energy to source power for data centers, for hydrogen development and a range of other new areas. But
you need capital to do that. And if the crown is sitting there saying, hello, we don't really want to contribute to this, well you can't stop the companies, in my view, from going ahead.
What are people investing in at the moment? Are there any growth areas or areas of opportunities here?
Well, I think you know the areas of opportunity. You know, things are shifting around a bit obviously at the moment, and partially that's due to the state of the markets and where we're at. But the long bet has to be on areas like green technologies, has to be space some big bets out there that the government is looking at in New Zealand, trade and enterprise and others. And you know, I'm not in the business of giving investment advice, but I would say read the report.
There is huge interest in renewable energy from overseas. I remember we spoke to Minister Judith Collins on the podcast and she said that that's all they wanted to talk to her about in Colorado, as well as her space portfolio of course, so there seems to be a lot of opportunity in that sector. Do you see this government being more open to privatizing some of those investments.
Well, I think they're more open to harnessing private capital to come into New Zealand. And if you look at the trip that Chster Piluxen will take to Tokyo next week, apart from the space focus which will be significant, there will also be focus on renewable energy and investments in that.
Japan has significant resource investments in New Zealand. And you know, some of these companies have quite recently stepped up in hydrogen and elsewhere, and that has been something which the government looked at really going back a decade or so ago, and it all got punctuated by COVID for a few years. But in essence, we do have sizeable assets that need investment. And the history of the Japanese investment has been good in this country. They solid investors, that patient, they play
by the rules. So I would anticipate that over time we will see more investment coming in from Japan in this particular area. But it won't just be Japan. You know, the United States is a major investor and a major
investor in green technology. And just last week up in Singapore at the Indo Pacific Economic Framework Meeting, they did actually have a beauty parade of smaller companies from the Asia Pacific and Indo Pacific and they launched an Indo Pacific Climate one hundred and we actually had eight New Zealand companies that were part of that, and this was
the Tech one hundred which was unveiled there. They're all quite small, but they're actually on the map now and you would imagine the type of international funds that were there, like black Rock and others. This has given them a huge push up. So over time some of those companies
may well develop into significant New Zealand companies. The government's doing a lot of that, and I haven't seen the full list of who's going up with the Prime Minister next week to Tokyo, but we can expect to see some more companies in that renewables area, and of course Morrison Paul Newfield is there. They've got a sizeable international portfolio apart from here their obvious interest in managing infratil, but they have a sizeable renewables portfolio and we'll see more of that.
Speaking of the Prime Minister's travels, we last spoke to you on the front page when Luxon visited Southeast Asia. He's now of course heading to Japan next week.
This week we're welcoming Premier League one to New Zealand, the highest level visit by Chinese leaders of twenty seventeen, and later this week we're off the Japan to keep building on our relationship there too.
So that's the formula. More trade with other countries means a stronger economy here at home. We're a small country at the bottom of the world, and we've really got to push really, really hard so that we can deliver stronger trade links overseas to make Kiwi's better off here at home.
How important are these business relationships to growing our economy.
Well, they're very important because we really have come off the radar. I mean I've sort of covered this on and off for many years and are a call writing for euro Money after the nineteen nineties recession about how the hunt for equity was a big thing for New Zealand. We just couldn't get the capitol we needed for some of our major companies who had been absolutely smashed by the nineteen ninety share market crash and took ages to get going again. So what happened was significant equity states
were brought up internationally and came into New Zealand. We saw that again with companies that were vulnerable after the GFC in two thousand and eight two thousand and nine, and we had three significant Chinese investments made at that time. I think this is absolutely critical. Again, we are competing internationally because you know, everybody is out there waving the flag, and if we're not there, if we're not in the market, and if we're not pushing our brand forward saying the
opportunities we have. The government positioning itself is not only open for business, but actively fostering it. That is super important.
I think one of the important things which has been pretty much overlooked is a shift that the government made last week and INNY since David Sema, the Associate Finance Minister, wrote to the Overseas Investment Commission and said he wanted to shorten the time by half for getting approvals for investments foreign investment in New Zealand and stripping out a
lot of regulation. People have comment on this and we've had one of the lowest active investment foreign direct investment rates in the OECD.
And China is still one of our biggest trading partners. That we've actually got Chinese Premier Li Jiang visiting this week, the first such visit in seven years. How important is this visit and is there any concern from China at us looking elsewhere?
Oh? Look, China is looking elsewhere itself. I mean if you go somewhere like Guangzhou and to the Guangdong Province, which has been a massive manufacturing motor for China and the world for some twenty years now, a number of those companies have also set up operations and places like Vietnam and elsewhere in Southeast Asia because it's a growth area and also they can get cheaper labor. You know,
this is fundamentally a factor. There are growing populations in Vietnam and Indonesia, Philippines and these are younger population and over time they you know, will have a terrific growth story to tell. So it is important that we're part
of that. You know, the government is positioning it is China and rather than diversification away from China, and the statements out of ministers, particularly Todd McLay, the Trade Minister this week, have really been about wanting to continue to grow with China but also to grow with other developing markets in the Pacific RIM.
And looking ahead, Fran, when do the people you've spoken to expect things to turn around, say like the in ZX fifty, which has been quite lackluster. Is there any particular moment or event people are kind of waiting for?
Oh, look, I think you know things are cyclical and you know there is a rhythm. We've been through these cycles before. Ultimately it depends on optimism. But you know, animal spirits is I think they refer to it. And
in the investing arena, do return to markets? I think once we get out of the low grape cycle and you know, the returns on fixed assets and fixed interests and all of that move and people can see the logic of moving into a way from just parking money in a bank or somewhere else for the time being, that actually to get back into markets that will turn. I wouldn't say exactly when there's a number of factors there, thinking domestically but also looking internationally. There's also a range
of geostrategic factors. You know, China and the United States stash what's happening in the US If, for instance, we get a change of president there at the end of the year, will that mean our exporters face significant tariffs going into the United States. What's happening with all the
other elections around the way? Will Modi continue to operate a pro business agenda to the extent he has in India now that he's had his wings clipped, And then of course we've got major issues the French election, the UK elect I mean, it is the year of the vote this year, so there's significant disruption and volatility out there, but it's also a good time to take money if you're into risk.
Thanks for joining us FRAN and you can find the Capital Markets Magazine in today's issue of the New Zealand Herald or online. That said, for this episode of the Front Page. You can read more about today's stories and extensive news coverage at enzet Herald dot co dot z. The Front Page is produced by Ethan Siles with sound engineer Patty Fox.
I'm Chelsea Daniels.
Subscribe to the Front Page on iHeartRadio or wherever you get your podcasts, and tune in tomorrow for another look behind the headlines.