Inward investment in focus as New Zealand eyes green shoots

New Zealand is emerging from recession though its recovery to date is patchy by sector and geography. Speakers at the annual ANZ-KangaNews New Zealand Capital Market Forum, which took place in Auckland on 27 March, say attracting a greater volume of international investment – in sectors including the bond market and infrastructure development – will be key to catalysing growth.

“Total defence spending in Germany is about €50 billion a year and we are talking about an eight- to tenfold increase. Putin, when he finally sits on the right hand of Satan, can view for all eternity the law of unintended consequences. Anyone familiar with the two or three century conflict between Germany and Russia will understand what I am talking about.”

“Imagine you’re on the board of a company in the US and someone says to you: ‘With 25 per cent tariffs there is a giant gap in the market. Let’s put a few hundred million dollars, as the president wants us to, into a new aluminium smelter in the US.’ It will take 5-7 years to build, without a single dollar being produced in revenue, and you’re relying for its competitiveness on political support for the 25 per cent tariff. You’d be an idiot to do that.”
TIM GROSER

“The most important issues facing New Zealand today include the increase in our budget deficit over the last few years, requiring a significant funding programme, and a growing and increasingly vibrant but still relatively small savings sector – with investment, for most New Zealanders, concentrated in housing assets. These two those things together give rise to quite a large current account deficit. We also have a major infrastructure deficit, which necessitates significant capital investment.”

“I just don’t know whether we are discussing issues in a way that connects with a lot of people. I think of myself as an old-fashioned liberal, and yet I find myself being labelled left wing – because I believe in democracy. It is becoming tougher to have any kind of conversation without triggering people on the extreme left and the extreme right. Some of the room is lost, though there is still a discussion to be had in the centre.”

“In general, people are still feeling downbeat. While the numbers are pointing to us coming out of recession, there is a disconnect in the sense that people are still feeling the cost of living crunch. Prices might not be rising as fast as they have been, but they’re certainly not falling.”

“The process of appointing a new RBNZ governor is a good opportunity to have a good, hard think about what we want from the reserve bank and to look at its key tools. Is the way we do monetary policy, that was designed a long time ago, still the best way to operate? When inflation gets too high do we still want to engineer a recession and throw thousands of people out of work? Maybe this is still the best option, but we ought to discuss and debate it.”

“The economy is very different by region. South Island, Christchurch in particular, is like a different country. They have more affordable housing and lots of young professionals, and the rebuild is still going on. They are also exposed to tourism and of course Canterbury is exposed to dairy. They are doing fine, on the whole. Northern areas with lower incomes, unsurprisingly, are much more stressed at the moment.”

“We are waiting for households to get used to and accept the new price level as normal. The upshot is that the perception of a cost of living crisis is likely to persist longer than the actual, aggregate cost of living crisis – if we think about it as real wages going backwards.”
SHARON ZOLLNER ANZ

“Being a long way ahead of our run rate means we have some options. We can either maintain the current issuance pace and pre-fund some of next year’s programme or we can dial back issuance in the near term. We view the small amount of pre-funding we did last year and the small amount we will likely do this year is as a pragmatic approach to achieving a large programme, rather than a change in strategy.”

“Last week, the OECD released a global debt report that showed sovereign issuance in OECD countries is projected to reach US$17 trillion in 2025, up by US$3 trillion over the last two years. Meanwhile, central banks continue to reduce their holdings and at the end of 2024 more than half of OECD sovereign debt had rates below the current market. With servicing costs coming to the fore, it is not surprising that concerns about sustainability are front of mind.”

“We have been heartened by the fact that there are more participants globally in the NZGB market, and we believe this will probably increase further. Even though our government bond issuance has increased quite markedly, it’s still quite small in a global sense. We are still a highly rated government and bond yields are high, so we believe liquidity will beget liquidity. I’m not worried about extra NZGB issuance.”

“We have closed the gap in pricing in New Zealand dollars – we are much closer than we have been. It is interesting to see New Zealand domestic issuers active in offshore markets, as this should be supportive of the cross-currency swap moving in our favour. This has not yet been sufficient to close the gap in spreads between currencies for us, however.”

“Execution is a little quicker – issuers need to move fast when they see an opportunity is there. Unfortunately, we only have limited windows to issue quickly without seeking additional approvals, so we try to take the position of ‘send us a termsheet and we will be ready’. This includes doing larger trades intraday, though this is tricky when navigating time zones.”

“I’m pleased to announce today that cabinet has agreed to establish crown lending facilities of up to NZ$150 million for the Community Housing Funding Agency, to cover an interim lending facility to be provided in early April that will support the CHFA’s immediate financing needs and a final liquidity facility. In addition to this, the minister of finance intends to offer a loan guarantee scheme to banks to support their CHP lending.”

“What the minister has just announced makes this a very good day for New Zealand. With the government support announced today, the CHFA can deliver billions of dollars of affordable housing for New Zealanders over time. We hear a lot of infrastructure discussion but, in our mind, the biggest infrastructure challenge we face as a country and our biggest social challenge is the affordable housing crisis.”

“What attracts international capital and expertise to infrastructure is the type of project and pipeline but also projects not being so fully baked in that there’s no room for the innovation that could come along with capital. We might have good ideas but we should also accept the fact that we are not going to do everything optimally on our own. In other words, it’s not just about welcoming the capital – it’s incentivising capital and expertise to come into the country.”

“There are a lot of discussions at the moment about lack of depth in New Zealand’s capital market. This is not unique to New Zealand; this conversation is going on globally, because over the last 6-8 years there has definitely been a trend toward private and away from public markets.”

“We are very supportive of moves that the NZX might make to expand its derivatives market, which would certainly help liquidity. Having some of the investment banks bring their infrastructure here – things like clearing and stock lending – would also certainly help liquidity and make it easier for offshore investors to participate locally.”
JO TOWNSEND GUARDIANS OF NEW ZEALAND SUPERANNUATION

“Sharesies caters for a broad demographic and, while older investors are on the increase, 67 per cent of our base is under 40. Our mantra is that investing is for the long-term and typically investors are focused on ‘time in the market’, not ‘timing the market’.”

“The size of issuance we have completed couldn’t have been achieved without development of the New Zealand capital market’s capacity for securitisation products. The local market has actively supported the asset class and the reception we have received reflects the work a lot of investors have done to get themselves comfortable with securitisation.”

“Transformational infrastructure projects have the potential to attract pools of capital that bring not only funding but also valuable innovation and expertise. Leading global infrastructure investors are actively seeking aligned local partners to unlock local opportunities, design innovative financing models and introduce new products to the debt capital market.”

“There are some areas in which we can’t compete. Take Ireland: we aren’t going to have a 12.5 per cent corporate tax rate and we can’t offer the same access to the European market. We are also not going to have a massive balance sheet to offer grants to attract corporates. What we have to think about is what we can offer.”

“We have to be attracting international investors to sectors where we have a global competitive advantage. There are some tools we can use. For instance we can do de-risking for the offshore investor better at times. Some large projects here have three or four rounds of feasibility. Would it be unreasonable to suggest that in certain key sectors the government could co-invest into, or otherwise support, the early rounds with investors?”
SIMON ANSLEY INVEST NZ

“Our industry is going to be shaped over the coming years by a really interesting generational shift. This comes from the older generation having a lot of their assets in the housing market, and the coming shift of houses down to the next generation. A lot of middle-aged people will suddenly have to decide whether to keep these houses or sell them and invest in financial assets. Every generation goes through this, of course, but we are confronting a bigger wave at higher house prices than ever before.”

“A topic we are all focused on is whether 2025 will be the year in which credit finally comes out from the shadow of NZGBs. Credit is tight to the sovereign curve, but this is mainly because NZGBs are cheap – credit spreads themselves are actually close to long-run average levels.”

“The Australian market has been performing quite well for the past year or so, so it was a great time to return to issue there. We were also conscious that we haven’t issued in Australia since November 2021 and a lot of investors have concerns about one-time issuers. We wanted to get a second maturity to show that we are a repeat issuer and thus to help ensure there will be an available option for us going forward.”

“This year could be a really significant test for the Australian market. Prior to the past 2-3 years, the Australian market might not have been viewed as reliable during conditions of heightened volatility compared with the larger markets. If we are able to demonstrate reliability and depth in a volatile year, think Australia could prove itself as a global market of choice behind US dollars and euros.”