Speaker 1: Elder.
Speaker 2: I'm Chelsea Daniels and this is the Front Page, a
Speaker 2: daily podcast.
Speaker 3: Presented by the New Zealand Herald.
Speaker 2: The global economy is still recovering from a difficult few years,
Speaker 2: and New Zealand is not immune. The ENZX fifty has
Speaker 2: been struggling recently. The recent mini reporting season saw largely
Speaker 2: disappointing results for many companies and the usual investment opportunities
Speaker 2: are not delivering in these times of difficulty, though, there
Speaker 2: are plenty of opportunities for new industries to invest in
Speaker 2: and different countries for.
Speaker 3: New Zealand to look at for trade enzed Me.
Speaker 2: Business Editorial Director fran O'Sullivan is covering all these ups
Speaker 2: and downs in her latest Capital Markets and Investments special.
Speaker 2: She joins us now on the Front Page to discuss
Speaker 2: the state of the market. Frand, we all know the
Speaker 2: global economy is in a bit of a rough spot
Speaker 2: at the moment. What impact is that having on the
Speaker 2: capital markets and the investment industry.
Speaker 4: Well, I think what we're seeing is, you know, the
Speaker 4: investment industry is in an interesting, i would say inflection point.
Speaker 4: There's a very excellent article in the Report by Jamie
Speaker 4: Gray which looks at what's happening, for instance, with direct
Speaker 4: share markets versus money that just goes through private equity
Speaker 4: or directly into companies. You've seen quite a shift from that.
Speaker 4: People are in two minds about having exposure of their
Speaker 4: business to share markets and quarterly reporting that type of thing,
Speaker 4: particularly in the United States, and so we've seen quite
Speaker 4: a shift there. The number of publicly listed firms has declined.
Speaker 4: It's been quite similar in New Zealand, except on the
Speaker 4: converse side doing a capital raise, you know, like for
Speaker 4: instance we saw with Auckland Airport when they needed to
Speaker 4: raise funds at the time of the pandemic. That was
Speaker 4: done very quickly, and in that respect, a public market
Speaker 4: can act quite fast. So it's an interesting time. And
Speaker 4: against that also you have the rise of fixed interest
Speaker 4: The current environment means you're getting much more coin for
Speaker 4: money in the bank or in fixed interest type securities,
Speaker 4: and so it's shifting around a lot. Until the interest
Speaker 4: rates declined significantly, I think it will be harder to
Speaker 4: get markets roaring again.
Speaker 2: When we talk about capital markets, is that kind of
Speaker 2: where people are putting their investments, their money.
Speaker 4: Well, in capital markets, it's a very broad term. I
Speaker 4: mean you're also looking as I said, it's the plethora
Speaker 4: from money in the bank, it's key we savor, it's
Speaker 4: fixed interest, it's all sorts of avenues through the likes
Speaker 4: of particular companies that just aggregate, look after smaller investors,
Speaker 4: and there's directly in the share markets. So it's a
Speaker 4: very broad canvas. You know. If we're looking at New Zealand,
Speaker 4: we do need a lot of capital and the government
Speaker 4: has been emphasizing this repetitively that it wants private capital
Speaker 4: to come into for instance, helping to fund our infrastructure
Speaker 4: demand over the next little while, and that is quite massive.
Speaker 4: New Zealand has been posting an infrastructure deficit for a
Speaker 4: good fifteen years now and it doesn't get any smaller.
Speaker 4: In fact, you know, the impact of inflation, supply chain changes,
Speaker 4: all of that has meant that the cost of replacing
Speaker 4: infrastructure and building new infrastructure has escalated and we saw
Speaker 4: that for instance when the prior government was trying to
Speaker 4: do the light rail project and that expanded in the
Speaker 4: cost structure. We saw it more recently with Kiwi Rail
Speaker 4: and the Cook Straight ferries. So there's a big demand
Speaker 4: for funds there. One of the things which is quite
Speaker 4: interesting at this present time is whether we will access
Speaker 4: Kei we Saver for instance, and the Stock Exchange the
Speaker 4: nz X has pointed to, you know, their massive amount
Speaker 4: of funds that have already been aggregated in Kei we
Speaker 4: Saver in New Zealand and suggestions that if we just
Speaker 4: had the same amount pro rata as with Australia with
Speaker 4: their funds coming into infrastructure, that would go a long way.
Speaker 4: So this tension between bringing in foreign investment but also
Speaker 4: making sure that New Zealand investors via their Kei Wei
Speaker 4: Saver accounts, also have a slice of the action.
Speaker 3: Well, I was going to say, is the point of
Speaker 3: difference with Australia.
Speaker 2: Hey, the super fund is enormous and they use it
Speaker 2: in quite different ways to us.
Speaker 5: You know, people look at Australia and saying it's doing
Speaker 5: much better. Well, the financial sector is always in better
Speaker 5: shape because they have compulsory super and much more savings
Speaker 5: to balance out the debt they have. So Australia's economy
Speaker 5: is usually looking more robust than ours.
Speaker 3: Are there any lessons to be learned there?
Speaker 4: Well, the big lesson was we were too slow off
Speaker 4: the mark and so we're looking at you know, the
Speaker 4: private savings funds that have been masked in Australia through
Speaker 4: their compulsory superannuation schemes compared to here, where you can
Speaker 4: still on an opt out basis. Australia, it's a much
Speaker 4: higher percentage than here. It has operated probably for twenty
Speaker 4: years ahead of New Zealand. We passed by the opportunity
Speaker 4: to do this back in the seventies and eighties when
Speaker 4: we should have, and you know, we re late to
Speaker 4: the party. The late Sir Michael Cullen essentially got key
Speaker 4: we Saver up and running and good on them, but
Speaker 4: we were very slow and it has hindered the economy.
Speaker 4: It's hindered the amount of private savings available to people
Speaker 4: when they retire or to put against building hard assets
Speaker 4: like housing and homes for themselves along the way. But
Speaker 4: also we haven't got that private funds coming into the
Speaker 4: New Zealand market in the degree that we should. Much
Speaker 4: of it has invested offshore considerable here. But you know,
Speaker 4: if I think back to earlier on in the century
Speaker 4: when we actually had quite an avalanche of funds coming
Speaker 4: out of Australia to buy up some of our major
Speaker 4: companies here, and it was funded to a large degree
Speaker 4: by their savings funds. So you know this is important
Speaker 4: for capital formation and for growth of our country.
Speaker 3: Should we make it compulsory to contribute to key we saver?
Speaker 1: Oh?
Speaker 4: Yes, absolutely, and it's quite barking that we haven't done so.
Speaker 4: I mean, this should have been done years ago. You know,
Speaker 4: this is one area of lass A fair that really
Speaker 4: in the best interests of the entire population should have
Speaker 4: been dealt with earlier, because, of course, if you do
Speaker 4: have substantial private savings, it does lessen the demand on
Speaker 4: the government and the public funds at a later stage
Speaker 4: to look after people who haven't looked after themselves on
Speaker 4: their retirement.
Speaker 2: Mark Peterson begs the question how are we going to
Speaker 2: pay for that?
Speaker 3: Which I think is a good one. He's right, isn't it?
Speaker 2: For instance, we have a nationwide infrastructure deficit asb he
Speaker 2: estimates the editor over a trillion dollars. Is it surely
Speaker 2: time for New Zealand to look at something like public
Speaker 2: private partnerships.
Speaker 4: Yeah, and we have done that in the past, and
Speaker 4: there have been considerable public private partnerships. I think one
Speaker 4: of the things to be aware of though, that somebody
Speaker 4: at the end of the day still has to pay
Speaker 4: the piper, so you know, it isn't cost free in
Speaker 4: the sense that typically it might end up either being
Speaker 4: funded ultimately by taxation or funded by our user pays.
Speaker 4: And we will see a move to that more in
Speaker 4: toll roads, that type of thing, congestion charging. As you know,
Speaker 4: the government seeks to allow private operators to make a
Speaker 4: return on their investments, so you know, you can't neglect
Speaker 4: that side of it. I think one of the things
Speaker 4: he has done behind scenes, and Andrew Bailey, the Commerce Minister,
Speaker 4: went a little way towards talking about it, but it's
Speaker 4: still very in the development phase is looking at how
Speaker 4: we make good on the Capital Markets Report, which was
Speaker 4: done back in twenty nineteen and looked at a range
Speaker 4: of things about allocating capital and there were lots of
Speaker 4: ideas and recommendations there and not all of those have
Speaker 4: been met by a long way. But one of the
Speaker 4: issues which is worth exploring in my view, is allowing
Speaker 4: gen taylors like Mercury, Meridian and Genesis to raise capital
Speaker 4: themselves without the Crown participating. Crown has forty nine percent
Speaker 4: of those assets which were partially privatized under the mixed
Speaker 4: ownership assets program several years ago, back in twenty fourteen.
Speaker 4: They have grown in value since that time, which is
Speaker 4: an indication of the discipline of share markets on them
Speaker 4: and having to publicly report. But what is interesting is
Speaker 4: they are going to need more capital to expand and
Speaker 4: we have a brilliant opportunity right now with you know,
Speaker 4: is what has been rather euphemistically talked about New Zealand
Speaker 4: being a green battery for the world, in other words,
Speaker 4: producing renewable energy to source power for data centers, for
Speaker 4: hydrogen development and a range of other new areas. But
Speaker 4: you need capital to do that. And if the crown
Speaker 4: is sitting there saying, hello, we don't really want to
Speaker 4: contribute to this, well you can't stop the companies, in
Speaker 4: my view, from going ahead.
Speaker 2: What are people investing in at the moment? Are there
Speaker 2: any growth areas or areas of opportunities here?
Speaker 4: Well, I think you know the areas of opportunity. You know,
Speaker 4: things are shifting around a bit obviously at the moment,
Speaker 4: and partially that's due to the state of the markets
Speaker 4: and where we're at. But the long bet has to
Speaker 4: be on areas like green technologies, has to be space
Speaker 4: some big bets out there that the government is looking
Speaker 4: at in New Zealand, trade and enterprise and others. And
Speaker 4: you know, I'm not in the business of giving investment advice,
Speaker 4: but I would say read the report.
Speaker 2: There is huge interest in renewable energy from overseas. I
Speaker 2: remember we spoke to Minister Judith Collins on the podcast
Speaker 2: and she said that that's all they wanted to talk
Speaker 2: to her about in Colorado, as well as her space
Speaker 2: portfolio of course, so there seems to be a lot
Speaker 2: of opportunity in that sector. Do you see this government
Speaker 2: being more open to privatizing some of those investments.
Speaker 4: Well, I think they're more open to harnessing private capital
Speaker 4: to come into New Zealand. And if you look at
Speaker 4: the trip that Chster Piluxen will take to Tokyo next week,
Speaker 4: apart from the space focus which will be significant, there
Speaker 4: will also be focus on renewable energy and investments in that.
Speaker 4: Japan has significant resource investments in New Zealand. And you know,
Speaker 4: some of these companies have quite recently stepped up in
Speaker 4: hydrogen and elsewhere, and that has been something which the
Speaker 4: government looked at really going back a decade or so ago,
Speaker 4: and it all got punctuated by COVID for a few years.
Speaker 4: But in essence, we do have sizeable assets that need investment.
Speaker 4: And the history of the Japanese investment has been good
Speaker 4: in this country. They solid investors, that patient, they play
Speaker 4: by the rules. So I would anticipate that over time
Speaker 4: we will see more investment coming in from Japan in
Speaker 4: this particular area. But it won't just be Japan. You know,
Speaker 4: the United States is a major investor and a major
Speaker 4: investor in green technology. And just last week up in
Speaker 4: Singapore at the Indo Pacific Economic Framework Meeting, they did
Speaker 4: actually have a beauty parade of smaller companies from the
Speaker 4: Asia Pacific and Indo Pacific and they launched an Indo
Speaker 4: Pacific Climate one hundred and we actually had eight New
Speaker 4: Zealand companies that were part of that, and this was
Speaker 4: the Tech one hundred which was unveiled there. They're all
Speaker 4: quite small, but they're actually on the map now and
Speaker 4: you would imagine the type of international funds that were there,
Speaker 4: like black Rock and others. This has given them a
Speaker 4: huge push up. So over time some of those companies
Speaker 4: may well develop into significant New Zealand companies. The government's
Speaker 4: doing a lot of that, and I haven't seen the
Speaker 4: full list of who's going up with the Prime Minister
Speaker 4: next week to Tokyo, but we can expect to see
Speaker 4: some more companies in that renewables area, and of course
Speaker 4: Morrison Paul Newfield is there. They've got a sizeable international
Speaker 4: portfolio apart from here their obvious interest in managing infratil,
Speaker 4: but they have a sizeable renewables portfolio and we'll see
Speaker 4: more of that.
Speaker 2: Speaking of the Prime Minister's travels, we last spoke to
Speaker 2: you on the front page when Luxon visited Southeast Asia.
Speaker 2: He's now of course heading to Japan next week.
Speaker 1: This week we're welcoming Premier League one to New Zealand,
Speaker 1: the highest level visit by Chinese leaders of twenty seventeen,
Speaker 1: and later this week we're off the Japan to keep
Speaker 1: building on our relationship there too.
Speaker 6: So that's the formula. More trade with other countries means
Speaker 6: a stronger economy here at home. We're a small country
Speaker 6: at the bottom of the world, and we've really got
Speaker 6: to push really, really hard so that we can deliver
Speaker 6: stronger trade links overseas to make Kiwi's better off here
Speaker 6: at home.
Speaker 2: How important are these business relationships to growing our economy.
Speaker 4: Well, they're very important because we really have come off
Speaker 4: the radar. I mean I've sort of covered this on
Speaker 4: and off for many years and are a call writing
Speaker 4: for euro Money after the nineteen nineties recession about how
Speaker 4: the hunt for equity was a big thing for New Zealand.
Speaker 4: We just couldn't get the capitol we needed for some
Speaker 4: of our major companies who had been absolutely smashed by
Speaker 4: the nineteen ninety share market crash and took ages to
Speaker 4: get going again. So what happened was significant equity states
Speaker 4: were brought up internationally and came into New Zealand. We
Speaker 4: saw that again with companies that were vulnerable after the
Speaker 4: GFC in two thousand and eight two thousand and nine,
Speaker 4: and we had three significant Chinese investments made at that time.
Speaker 4: I think this is absolutely critical. Again, we are competing
Speaker 4: internationally because you know, everybody is out there waving the flag,
Speaker 4: and if we're not there, if we're not in the market,
Speaker 4: and if we're not pushing our brand forward saying the
Speaker 4: opportunities we have. The government positioning itself is not only
Speaker 4: open for business, but actively fostering it. That is super important.
Speaker 4: I think one of the important things which has been
Speaker 4: pretty much overlooked is a shift that the government made
Speaker 4: last week and INNY since David Sema, the Associate Finance Minister,
Speaker 4: wrote to the Overseas Investment Commission and said he wanted
Speaker 4: to shorten the time by half for getting approvals for
Speaker 4: investments foreign investment in New Zealand and stripping out a
Speaker 4: lot of regulation. People have comment on this and we've
Speaker 4: had one of the lowest active investment foreign direct investment
Speaker 4: rates in the OECD.
Speaker 2: And China is still one of our biggest trading partners.
Speaker 2: That we've actually got Chinese Premier Li Jiang visiting this week,
Speaker 2: the first such visit in seven years. How important is
Speaker 2: this visit and is there any concern from China at
Speaker 2: us looking elsewhere?
Speaker 4: Oh? Look, China is looking elsewhere itself. I mean if
Speaker 4: you go somewhere like Guangzhou and to the Guangdong Province,
Speaker 4: which has been a massive manufacturing motor for China and
Speaker 4: the world for some twenty years now, a number of
Speaker 4: those companies have also set up operations and places like
Speaker 4: Vietnam and elsewhere in Southeast Asia because it's a growth
Speaker 4: area and also they can get cheaper labor. You know,
Speaker 4: this is fundamentally a factor. There are growing populations in
Speaker 4: Vietnam and Indonesia, Philippines and these are younger population and
Speaker 4: over time they you know, will have a terrific growth
Speaker 4: story to tell. So it is important that we're part
Speaker 4: of that. You know, the government is positioning it is
Speaker 4: China and rather than diversification away from China, and the
Speaker 4: statements out of ministers, particularly Todd McLay, the Trade Minister
Speaker 4: this week, have really been about wanting to continue to
Speaker 4: grow with China but also to grow with other developing
Speaker 4: markets in the Pacific RIM.
Speaker 2: And looking ahead, Fran, when do the people you've spoken
Speaker 2: to expect things to turn around, say like the in
Speaker 2: ZX fifty, which has been quite lackluster. Is there any
Speaker 2: particular moment or event people are kind of waiting for?
Speaker 4: Oh, look, I think you know things are cyclical and
Speaker 4: you know there is a rhythm. We've been through these
Speaker 4: cycles before. Ultimately it depends on optimism. But you know,
Speaker 4: animal spirits is I think they refer to it. And
Speaker 4: in the investing arena, do return to markets? I think
Speaker 4: once we get out of the low grape cycle and
Speaker 4: you know, the returns on fixed assets and fixed interests
Speaker 4: and all of that move and people can see the
Speaker 4: logic of moving into a way from just parking money
Speaker 4: in a bank or somewhere else for the time being,
Speaker 4: that actually to get back into markets that will turn.
Speaker 4: I wouldn't say exactly when there's a number of factors there,
Speaker 4: thinking domestically but also looking internationally. There's also a range
Speaker 4: of geostrategic factors. You know, China and the United States
Speaker 4: stash what's happening in the US If, for instance, we
Speaker 4: get a change of president there at the end of
Speaker 4: the year, will that mean our exporters face significant tariffs
Speaker 4: going into the United States. What's happening with all the
Speaker 4: other elections around the way? Will Modi continue to operate
Speaker 4: a pro business agenda to the extent he has in
Speaker 4: India now that he's had his wings clipped, And then
Speaker 4: of course we've got major issues the French election, the
Speaker 4: UK elect I mean, it is the year of the
Speaker 4: vote this year, so there's significant disruption and volatility out there,
Speaker 4: but it's also a good time to take money if
Speaker 4: you're into risk.
Speaker 2: Thanks for joining us FRAN and you can find the
Speaker 2: Capital Markets Magazine in today's issue of the New Zealand
Speaker 2: Herald or online. That said, for this episode of the
Speaker 2: Front Page. You can read more about today's stories and
Speaker 2: extensive news coverage at enzet Herald dot co dot z.
Speaker 2: The Front Page is produced by Ethan Siles with sound
Speaker 2: engineer Patty Fox.
Speaker 3: I'm Chelsea Daniels.
Speaker 2: Subscribe to the Front Page on iHeartRadio or wherever you
Speaker 2: get your podcasts, and tune in tomorrow for another look
Speaker 2: behind the headlines.