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NZ share trading cools in record-breaking market; debt remains in vogue

Wednesday 3rd April 2019

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Share trading on New Zealand's stock market cooled in March as the benchmark index spent much of the month chalking up new records in an environment in which interest rates are expected to go even lower. 

The Reserve Bank's unexpected signal last week that it will likely cut the record-low 1.75 percent official cash rate stoked investor demand for yield, pushing share prices of utilities such as Meridian Energy and Chorus to new highs. At the same time, companies that benefit from a weaker currency such as Mainfreight have also been in uncharted territory. 

The S&P/NZX 50 Index is knocking on the door of 10,000, having gained 18 percent to 9,845 in March. It opened today at 9,929.18, down 0.3 percent. 

While those high prices helped drive a 13 percent gain to $3.76 billion in the value traded on NZX's equity markets last month from a year earlier, the volume traded slipped 1.1 percent to 292,403 in March 2018. That compares to 248,853 trades in February for a value of $2.94 billion. 

NZX has put a premium on driving more trading through the formal market, with new listing rules and an updated fee structure designed to encourage more on-market activity. The value of equity trades on-market in March was 48.1 percent of total trades, down 7.5 percent from a year earlier, and in line with the 47.9 percent recorded in February. 

The new rate outlook has pushed bond yields lower, attracting more interest from corporates keen on raising money through the listed debt market. Some $1.96 billion of new debt was listed in March, taking the year-to-date tally to $2.06 billion, and accounting for all new capital listed so far this year. 

Debt market trading increased 0.8 percent to 2,802 transactions in March from a year earlier, and up from 2,330 in February. The value traded was $145 million, up 45 percent as falling bond yields increased the price of those notes. 

NZX has been the subject of sustained criticism over the lack of initial public offerings over the past couple of years. However, a period of increased trade tensions triggered fears about the pace of the global economy and corporate earnings outlook, while at the same time cashed-up private equity firms with access to cheap finance have been willing to pay high prices to secure assets. 

The stock market operator is working with its regulator, the Financial Markets Authority, in driving a new review of the capital markets in an effort to address the declining number of equity listings. Its shareholders will get an update on its efforts at this week's annual meeting in Dunedin. 

Investors are optimistic the Hawke's Bay Regional Council's partial privatisation of Napier Port will go ahead later this year, while Vodafone New Zealand is preparing itself for listing next year under new chief executive Jason Paris.

Still, local equity listings are set to shrink further before they improve, with tapmaker Methven's shareholders backing a takeover bid last month, and online marketplace Trade Me holding special meeting today to approve a $2.56 billion takeover.

There were 135 equity securities listed on the NZX in March, down 5.6 percent from a year earlier. Debt securities were up 17 percent at 134 and fund securities rose 2.8 percent to 37. There were six other listed securities. 

Despite the lack of new equity listings, existing issuers have been more than happy to tap the local market in secondary capital raisings. Some $195 million of new capital was raised in March across 126 events, taking the year-to-date total to $966 million across 288 events. 

Total cash trading volume shrank 1 percent to 295,205 transactions in March from a year earlier, for a 14 percent gain in value traded to $3.91 billion. Year-to-date trading rose 1.6 percent to 752,562 trades, while the value traded dipped 0.3 percent to $9.32 billion. The value traded on-market was 48 percent in the first three months of the year. 

NZX's derivatives trading continued to grow, with total futures lots traded climbing 166 percent to 41,593 in March from a year earlier, more than offsetting a 12 percent decline in options lots traded at 4,330. Total derivatives traded rose 124 percent to 45,923. Open interest grew 55 percent to 58,087. 

Wholesale data terminal numbers for professionals rose 3.5 percent to 6,262 in March from the same month a year earlier, while retail terminals were up 11 percent at 1,289. Dairy subscriptions rose 7.8 percent to 968. 

NZX's SuperLife funds management business lifted total funds under management 14 percent to $2.25 billion, while Smartshares funds swelled 24 percent to $2.75 billion.

The wealth technologies unit lifted funds under administration 85 percent to $2.04 billion from a year earlier. Craigs Investment Partners signed up to the combined registry, administration and custodial service in November and shifting $950 million of its $16 billion under management on to the platform.

NZX shares fell 1 cent to $1 in early trading today.


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