Home advantage

Like every other global jurisdiction, the New Zealand capital market is digesting the implications of resurgent volatility and global economic developments – while local policy tightening continues to lead the world pack. There was a lot to discuss at the ANZ-KangaNews New Zealand Capital Market Forum, which took place in Wellington on 23 March.

“Last year, emergence from the pandemic and the economic implications were the key themes. This year, our focus is much more directly on capital markets, and the underlying investment themes and economic considerations.”

“The advice I am receiving is that we shouldn’t be deeply concerned about the impact of issues surrounding the stability of the global financial system on New Zealand. Our financial system is resilient, stable and strong with a robust regulatory backstop. Despite it being the occasional subject of debate, the conditions required to set up a bank in New Zealand, and the capital requirements to keep it going, ensure our sector remains stable.”


“Whatever scale of build we decide the government is facing following Cyclone Gabrielle, much of it will be spread over a long period. We simply don’t have the capacity to fix all the roads immediately, for instance. We are going to face more extreme weather events so we also have some important decisions to make about ‘building back better’.”


“As significant holders of high-grade bonds, bank balance sheets are crucial in primary market syndications as they provide guidance, support and confidence for other investors to participate. There may be consequences if balance sheets are to be restricted in their holdings of high-grade bonds as a result of the liquidity review.”

“If suggestions laid out in the RBNZ’s liquidity policy consultation are implemented, we expect to see increased demand for NZGBs in the sub-10-year part of the curve. This demand would likely be spread over several years. We have the flexibility to respond by issuing more into a specific part of the curve if we choose.”

“Diversity is a good thing but the more a fund diversifies the more it can gravitate to mediocrity – which is not the objective of an active investor. We need to know what we are investing in, why we are investing in it, where the risks lie and how to price them – and be aware that the unexpected will always happen. When the unexpected happens, quality will endure.”

“We are keeping a careful eye on the liquidity review and, in particular, on how Kauri issuance will be categorised. In other jurisdictions, World Bank is classified as a level-one HQLA asset. We have strong support from bank balance sheets in New Zealand but demand may be significantly affected if there is a change in the category.”

“A 2022-23 theme has been the extent of swap curve inversion – creating incentives and disincentives to invest across the curve. This is very relevant for a predominantly fixed-rate market like New Zealand.”

“There was a big push from retail into bonds when there was fear of negative rates – even when yield was at 2-3 per cent this might have been the best on offer for a few years. But investors enjoyed the environment of rising rates as well. Retail investors are concerned with mark-to-market in a rising rate environment but, at the same time, they are always looking for the best opportunities they can get.”

“After recent volatility we have been asked about the accounting treatment of our liquid assets. We don’t own any liquid assets in a hold-to-maturity portfolio. We have also had some questions about our AT1 notes. Perpetual preference shares that are eligible under the revised RBNZ rules in New Zealand don’t include write-off in the terms.”

“The market has had to re-price certain risks it had become complacent about, for example risk premia associated with European CoCo bonds. I expect all investor types will be looking at credit opportunities with a little less gusto than they may have been, perhaps with a requirement to be better compensated for the broader set of risks.”

“Before we go offshore, we will consider the appetite of domestic investors and, in particular, what would encourage them to buy Transpower bonds. Then we will think about offshore markets – how we might go there and achieve diversity without upsetting domestic investors.”

“If 2022 was a ferocious year with nowhere to hide in fixed-income markets globally, 2023 started on a much better footing. Terms like ‘bonds are back’ were bandied around. Since then, we have had the demise of SVB and the marriage of convenience between UBS and Credit Suisse to try to avert another global financial crisis. We continue to experience the most volatile and unrelenting period.”

“Most portfolio inflows come into our diversified funds via KiwiSaver. We set a strategic asset allocation that we can adjust tactically. The strategic view is set over a 10-year period. We move via tactical asset allocation. In the last year we started underweight fixed interest, moving overweight more recently; we moved to be underweight equities as we think the risk of recession has increased.”

“What we are seeing come to bear this year – through SVB, Credit Suisse and the downturn in the New Zealand housing market – are the long, variable lags from monetary policy. I believe we will continue to experience them. This year is likely to feature events that are hard to anticipate specifically but of a nature that is foreseeable.”

“It has been an exceptionally long credit cycle in which, arguably, credit research skill has been less important in driving returns. However, late cycle events tend to refocus clients and analysts alike. Ultimately, asset managers need to be able access diversified sources of alpha to outperform through the cycle.”

“I worry about a hard landing locally. Despite how resilient and robust the government tells us the economy is, conversations with business owners tell us a different story. If this happens, New Zealand short-end rates and credit could offer interesting value.”

“According to the WWF, US$44 trillion of economic value generation – representing more than 50 per cent of global GDP – is moderately or highly dependent on nature and its services. In this context, New Zealand being a land-based exporting nation will be of significant importance.”

“We are often asked if avoidance or removals credits are ‘better’. At the moment, avoidance projects are cheaper – but this doesn’t make them less valid. Meanwhile, removals will be the solution in the longer term. Both are important for decarbonisation because they often support projects in developing countries that can’t be funded in other ways.”

“The spectre of climate-related disclosures is front and centre for many organisations, given its sudden proximity, while momentum on biodiversity reporting is building incredibly fast. If they do not disclose just yet, companies at least need to turn their minds to assessing and understanding nature-related impacts and dependencies.”

“Not only do we assess the impact of our own projects, we assess the impacts of our counterparties’ projects on their balance sheets. It is not enough for them to ‘do good’ only for 10 per cent of the balance sheet.”

“Globalisation is changing, with big implications for small economies such as ours. The global trading system is fracturing along political lines and geopolitical tensions are rife. This presents the monetary policy committee with a very volatile and challenging international environment to navigate over the current cycle. It also raises big questions about the type of economy we will have once inflation is back within the target band.”

“In light of recent global financial market turmoil the equity market, credit conditions and credit spreads have all suddenly become more interesting to observe. They could tighten financial conditions markedly, to the point where the OCR has less work to do or even make cuts a possibility. But if the wheels stay on, the stickiness of price and wage pressures imply a much more prolonged period of elevated rates than markets are currently pricing.”

“The reserve bank’s best guess is that the neutral OCR is 3.8 per cent, but it could be as low as 2.7 per cent or as high as 5.4 per cent. The RBNZ appears to be getting traction in cooling the economy, but it can’t have any certainty about the path ahead – different neutral scenarios and the usual lags before monetary policy takes effect mean our heads might be about to hit the windscreen or still more could be required. It is challenging to engineer any kind of precision steering at the best of times, but particularly in this environment.”


“We have had a lengthy period in which we injected cash into the system when things got tough: this is the ‘opioid effect’ of policymaking. We will only beat inflation if central banks are as focused on it as they used to be and if politicians are willing to carry the pressure that goes with the impact of getting inflation down on unemployment and the housing market.”

“I get concerned about international accounting standards boards trying to bring in reporting for nonfinancial activities. It is hard enough to get the financial stuff right, never mind diverting the attention of management and boards to a framework that pretends to be precise about a whole range of things we cannot be precise about.”