Capital Markets: Rising appetite for NZ on the ASX

Capital Markets: Rising appetite for NZ on the ASX

The Australian Securities Exchange (ASX) has been pursuing a strategy over the past five years to increase the diversity of stocks available.

Diversification is a central tenet of well-balanced portfolios, and that means companies in the technology and life science sectors are in high demand. Institutional investors, in particular, seek additional investment prospects beyond the long-standing dominance of mining and financial firms on the ASX.

Blair Harrison, head of New Zealand Listings at ASX, says investors are also looking for diversity in geography, and for that reason they also like to see New Zealand companies in the mix.

New Zealand’s burgeoning tech sector already has a formidable presence on the ASX.

Until recently, 10 of the 65 New Zealand companies listed on the ASX were technology companies, two of which were included in the ASX All Tech Index (earlier this month church donation company Pushpay was delisted after being sold to a consortium linked to a Melbourne-based private equity firm).

Xero has achieved “unicorn” status on the ASX as a technology company with a valuation or market cap of over $1 billion. With a market capitalisation of more than $10b, the New Zealand-founded accounting software company is now one of the largest on the ASX, the fifth largest company by market capitalisation in the All Tech index and a constituent of the ASX 50.

Harrison says from an investor standpoint, New Zealand tech companies are well respected globally.

“They tend to exhibit an entrepreneurial approach, demonstrate good governance, and possess a global mindset right from the outset,” he explains.

“This is largely due to the challenge of geographic distance. Being a country that is far away, these companies are aware they must target international markets and adopt an international perspective from the very beginning, which companies in Australia don’t necessarily have to do.”

The large investment community and significant number of companies in Australia mean that New Zealand technology stocks have greater scope to be covered by analysts. The ASX has close to 250 technology companies and around 200 companies that come under the umbrella of life sciences.

Harrison explains that this means that Australia has fund managers, researchers and brokers who can specialise and have greater familiarity with the sectors.

“Rather than one analyst who covers a range of sectors — from industrial to consumer products to technology — you can have a team of people focused on a particular sector, which means they have a very good understanding of how a company is performing.”

That research, in turn, raises the awareness of emerging New Zealand companies among Australian and international fund managers.

These companies can also be compared against similar ASX-listed healthcare and technology companies, which helps analysts determine company valuations and provides economies of scale in research.

Harrison says there is a robust pipeline of technology companies looking to list, and he expects to see New Zealand tech continue to thrive on the ASX over the next few years. This is driven by investor appetite, both from Australia and New Zealand, and further afield.

Beyond tech, other New Zealand sectors that are in demand from the ASX investor base are infrastructure stocks including airports and ports which are not common on the ASX. New Zealand’s aged-care sector is another of interest.

Looking ahead, Harrison says the scale of superannuation funds across Australia and New Zealand will have an impact on investment choices and companies that come to the stock exchange.

By 2041, the total superannuation assets of Australia and New Zealand combined are expected to approach A$10 trillion.

“We know that a lot of that superannuation fund money goes into the stock market,” he says. “That means there will be a huge demand for companies to come to the ASX, and in particular, demand for companies that meet the attributes that the demographic are looking to invest in.”

He points to the rise in economies focused on climate change and the future of food as an example of this.

“ESG is having a huge impact because investors are becoming more powerful. We are all becoming investors — either directly or indirectly — through our superannuation, which is growing exponentially.”

Listings down last year, but higher activity in follow-on offerings

When volatility and uncertainty sweep across global economies, the volume and value of initial public offerings (IPOs) on share markets fall. IPOs were down around the world in 2022, attributable to volatility in the markets brought on by significant macroeconomic events, including Russia’s invasion of Ukraine and surging inflation.

While this was also true for Australia, the ASX still managed 107 listings in 2022. Almost all these listings were in mining, particularly for battery materials like lithium, copper, nickel and gold, which are in high demand.

This figure is close to its annual average of around 135 per year, but down from a phenomenal 2021 that saw 241 companies debut on the ASX fuelled by the cash that was injected into the economy.

“We continue to engage with companies and stakeholders in the ecosystem,” says Harrison.

“Those conversations haven’t slowed down at all, and once the level of volatility returns to a normal level, we expect a lot of these listings to come to market.”

The ASX tracks volatility through the S&P/ASX 200 VIX, a real-time volatility index. This enables interpretation of investor sentiment and market expectations. Notably, the ASX tends to witness higher IPO activity when the VIX value falls within the 10-15 zone.

Despite the decrease in listings last year, the ASX saw higher activity in follow-on offerings as ASX-listed companies raised capital. Follow-on offerings, which include placements, rights issues and share purchase plans, can also be used to bring new sophisticated and institutional investors into a share register and help increase liquidity in a company’s shares.

ASX was the top-ranked exchange globally for the volume of follow-on capital offerings in 2022 with 1060. This was more than double the comparable volume on the Nasdaq exchange in the United States, more than triple the volume on the London Stock Exchange and was higher than any exchange in Asia-Pacific.

This is the third consecutive year that ASX has led global rankings for follow-on offerings by volume. By value of follow-on offerings, ASX was the fifth-ranked exchange globally in 2022. More follow-on capital was raised on ASX last year than on the London Stock Exchange or Hong Kong Stock Exchange.

Some industries were hit hard through the pandemic and needed to raise finance to shore up their balance sheets and get through, but Harrison says that other raises were more opportunistic.

“For example, a company might have taken the opportunity to raise capital for an acquisition of a company at a good valuation compared to in 2021 when valuations were very high,” he says.

Blair Harrison

Blair Harrison is the Head of New Zealand Listings at the Australian Securities Exchange (ASX) and heads the ASX New Zealand office, based in Auckland.

Capital Markets: Hong Kong poised to make strong recovery

Since its borders reopened in January, Hong Kong has been focused on re-establishing itself as a prominent business hub and a connector between mainland China and the global financial community.

This was evident at Hong Kong’s Asian Financial Forum, held in person early this year, where it was noted that despite the need for Hong Kong to navigate macro-economic challenges on many fronts — including rising interest rates, the adjustment in the local housing market, and the global economic slowdown — its strong institutional frameworks and substantial capital and liquidity buffers have allowed the financial system to remain resilient and continue to operate smoothly through multiple shocks over the past few years.

Almost 70 per cent of attendees polled expressed a “neutral to positive” sentiment towards the global economic outlook. The upbeat attitude was likely bolstered by the border reopening just days before the conference.

Indeed, the International Monetary Fund (IMF) recently reported that Hong Kong’s recent lifting of Covid-related restrictions, including border controls that lasted nearly 1000 days, has helped to normalise its economic activity.

The resumption of cross-border travel has seen services exports expand significantly, and domestic private consumption has experienced considerable growth as pandemic restrictions have eased. The IMF projects a real GDP growth for Hong Kong of 3.5 per cent in 2023 and 3.1 per cent in 2024.

Project Auckland panel: Simon Bridges, Viv Beck & Mark Thomas

Project Auckland panel: Simon Bridges, Viv Beck & Mark Thomas

NZ Herald’s Tim McCready leads Heart of the City CEO, Viv Beck, Auckland Chamber CEO, Simon Bridges and Committee for Auckland Director, Mark Thomas in a discussion on the pain points plaguing Auckland’s infrastructure.

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Project Auckland: Opportunity costs lie in flood and cyclone response

Project Auckland: International cities show how to soak up stormwater

Project Auckland: International cities show how to soak up stormwater

In 2015, China implemented a concept known as “sponge cities” in 16 urban areas to combat flooding caused by stormwater.

The initiative was in response to the devastating Beijing flood in 2012, which claimed 79 lives and prompted authorities to make sponge cities a nationwide policy.

The idea was promoted by Chinese landscape architect Yu Kongjian, who advocated for the integration of nature’s ability to absorb, store and filter water into city infrastructure to mitigate against runoff.

This approach involves using green infrastructure to allow water to follow its natural channels, with streams and creeks uncovered, parks and grasslands restored, and planting used to slow down the flow of water and enable natural absorption, infiltration and purification. This is in stark contrast to the conventional grey infrastructure solution that speeds up the flow of water using pipes and drains.

Qunli stormwater park, in the northern Chinese city of Harbin, is an example of the concept. The park collects, filters and stores stormwater, and has become a popular urban amenity for recreational use. Capable of retaining and filtering up to 500,000 cubic metres of stormwater, the park has solved the stormwater inundation issue for an area 10 times its size, spanning over three kilometres.

Reflections from Hong Kong (LinkedIn)

Asian Financial Forum: Optimism in Hong Kong despite economic outlook (NZ Herald)

Asian Financial Forum: Optimism in Hong Kong despite economic outlook (NZ Herald)

While the economy faces a challenging year, China’s reopening is a source of cautious positivity

Despite the International Monetary Fund’s (IMF) projected slowdown of growth this year to 2.7 per cent from 3.2 per cent in 2022 and its suggestion of an outlook fraught with uncertainty, the recent reopening of China resulted in an upbeat mood at the Asian Financial Forum (AFF) in Hong Kong this week.

The high-powered forum included keynote speeches from Helen Clark and former UN Secretary-General Ban Ki-moon, and brought together some 2000 delegates including politicians and policymakers, global financial and business leaders, investors and entrepreneurs from over 70 countries and regions. It was the first in-person gathering for the event after being held in a virtual format for the past two years.

Opening the Summit, Hong Kong’s chief executive John Lee acknowledged the global challenges but said the timing of the forum – just three days after resumption of quarantine-free travel to and from mainland China – provided a source of optimism.

Asian stocks traded higher following the resumption of quarantine-free travel and the end of China’s zero-Covid policy, and delegates shared this bullish view at the AFF.

When polled on expectations of the global economy in 2023, some 69 per cent said they were either optimistic or neutral. Just 31 per cent responded with a negative sentiment about the year ahead.

Chair of HSBC Holdings, Mark Tucker, said China’s reopening and the package of measures it is introducing to stabilise the weakened property market will be positive for both its own economy and the global economy more broadly, albeit with ongoing volatility and challenges associated with the escalation in Covid-19 cases.

“Hong Kong and the Greater Bay Area are likely to be the immediate beneficiaries from the mainland reopening,” said Tucker, expecting a strong recovery to be seen from the second quarter.

Even more significantly, it could potentially be the stimulus on which the global outlook for which 2023 depends on.

Tucker was enthusiastic that Asia was resilient, and had prospects for a strong rebound later in the year.

“We have seen virtually all economies in the region now recovered from the output losses incurred during the pandemic to above 2019 levels,” he said.

He highlighted that India too had become a hugely attractive market within Asia, with a strong long-term outlook, supported by the demographic dividend provided by having over two-thirds of its population of working age, along with important reforms and rapid developments in the digital economy coupled with global supply chain shifts.

“This could be the basis for a 20-30 year runway for growth, as was the case for China in the 1990s,” he said. “The same is still true of Singapore and across many Asean markets more generally.”

In contrast, he said a recession is widely expected in the United Kingdom and the EU with challenges from high inflation driven in part by higher energy prices and the war in Ukraine. Both are contributing to a cost-of-living crisis and squeeze on real incomes.

“The US economy is proving more resilient than those in Europe, and I don’t expect a hard landing,” he said. “I expect any US recession to be much shallower than those in Europe.”

“All of this means I am more optimistic about the second half of 2023. I expect inflation to slowly come under control. The markets are hoping that rates peak in the first half of the year so that any recession is shallow, regionally limited and resolved quickly.”

Chair of Agricultural Bank of China – one of China’s ‘big four’ banks – Gu Shu, shared this encouraging position, telling the forum the US is now facing lighter inflationary pressure, and inflation in the eurozone is expected to peak later this year.

“The need to continue raising interest rates weakens,” he said. “We estimate that in 2023, the pace of interest rate hikes will slow down.

“However, with rising food prices and a shortage in labour supply, the high current interest rates and tight monetary policy is likely to continue for some time.”

Navigating the polycrisis

The forum included a focus on how countries and financial institutions can tackle the looming polycrisis – a term coined to describe the multiple interrelated economic, political, and ecological shocks upending the global economy.

Panellists stressed it will be essential to work closely together to navigate the polycrisis, especially due to the many global issues that will need closer cooperation among countries to solve including the food, energy and cost of living crises, supply chains, climate change and the ongoing pandemic.

Luxembourg’s Finance Minister Yuriko Backes told the forum that while Covid tested the limits of globalisation and exposed several weaknesses, particularly in supply chains, the wrong conclusion for countries to draw from the crisis would be that we need a general decoupling from other economies.

“There is a worrying wider trend toward deglobalisation and protectionism in Europe and also elsewhere, and it is therefore important that efforts to increase autonomy do not translate into widespread market and technology fragmentation.”

Protectionism risk

Backes said there is a risk Europe’s open strategic autonomy, China’s dual circulation strategy which also aims to increase self-reliance, or the ‘Buy America’ rules introduced in the US could lead to a collective decoupling of markets and increased protectionism.

In Asia, multilateralism is on the rise. The world’s largest free trade deaL the Regional Comprehensive Economic Partnership (RCEP) between Asia-Pacific nations including New Zealand, has just reached its first anniversary in force and continues to grow to reach its full potential.

But Antony Leung, group chair of Hong Kong conglomerate Nan Fung Group, said the elephant in the room is the ongoing rivalry between the United States and China, which brings with it trade protectionism and puts wider global cooperation at risk.

“As a result, we are seeing that the world may be facing ‘one world, two systems’ – one being the US-European system, and then the rest of the world,” he said.

-Tim McCready was a guest of the Asian Financial Forum

Dynamic Business: Pandemic era lessons from the Big Apple

Taking part in Air New Zealand’s business delegation to New York on the new direct Auckland-New York City flight was a great opportunity to catch up on the United States economic environment, trading conditions, geopolitics and trends. As someone who hadn’t crossed the New Zealand border since 2020 (but pre-pandemic was a frequent long-haul traveller), it was also a chance to get a taste of travel in the Covid era.

More than 20 of NZ’s most influential business leaders joined the delegation, including the heads of Mercury Energy, NZ Beef & Lamb, Sanford, The Warehouse Group, SkyCity, Infratil, Spark, Beca, Ngai Tahu and the University of Auckland. Between the CEOs and directors on board NZ2, Air New Zealand was responsible for carrying a sizeable fraction of New Zealand’s Top 200 businesses.

These delegations are often predicated around government-to-government relations such as bilateral and multilateral meetings, or free trade agreements, but this trip was different.

Despite including Deputy PM and Finance Minister Grant Robertson and National deputy leader and finance spokesperson Nicola Willis as part of the delegation, one of the distinct things about the trip was that it wasn’t politically focused.

Air New Zealand chair Dame Therese Walsh described the visit as a chance to not only showcase the airline’s new flagship route, but to “get back to doing what Air NZ used to do – be an important part of NZ Inc thinking and New Zealand’s economic development.”

Air NZ CEO Greg Foran’s status in the US was evident (he was previously CEO and president of retail giant Walmart US). He used his cachet to pull in high-profile speakers including Indra Nooyi – the former chair and CEO of PepsiCo and often touted as one of the world’s most influential women.

Though meetings were held under the Chatham House Rule, some of the lessons that stood out from three days on the ground in the Big Apple include:

From New Zealand to New York the challenges remain the same

The mood in many meetings was sombre, as the US grapples with many of the same economic headwinds as New Zealand. A looming recession, geopolitical tensions, constrained supply chains, a shortage of talent, burgeoning inflation and interest rate rises are creating uncertainty.

While Covid restrictions have all but gone in New York, the pandemic has left a permanent mark on the city. Companies in the US have embraced hybrid working which is considered “here to stay” as employees demand the flexibility that comes with it.

Covid testing sites are still scattered about, and despite no requirement for face masks, their use seemed far more common than in Auckland on public transport and in public spaces.

ESG under strain – but ignore it at your peril

The acronym ESG – which takes into account a business’s efforts on environmental factors, social issues and corporate governance – has risen to prominence over the past few years. But recently it has become politicised in parts of the US. Its association with liberalism has seen a backlash among some Republican officials who have described ESG policies as ‘woke’.

Acronym politics aside, there was a lot of talk in New York that US investors, customers and employees are continuing to focus on whether businesses are authentic about their purpose and leadership, and whether they are doing what they say they are doing when it comes to society and the environment.

This is more important than ever as Gen Z (those born between the late 1990s and early 2010s) become more prominent in the workforce. Many are choosing not to engage with businesses or even apply for jobs with employers that have a perceived negative impact on the environment, or an organisation that lacks diversity. If a business can explain why its activities are important not just for commercial differentiation but also for the planet and society, it will be a valuable competitive differentiator.

America doesn’t have time for short poppies!

Kirsten and Craig Nevill-Manning, former Facebook and Google executives who are among our most successful offshore New Zealanders, hosted a reception for the delegation at their spectacular multi-level Brooklyn apartment complete with a stainless-steel slide to traverse the floors.

There, a panel of New York-based Kiwis spoke about the many New Zealand businesses that are doing great things in the US – but stressed that we continue to be too demure for an American audience. To get cut-through in a crowded market that moves quickly, businesses must be prepared to share their unique points of difference and accomplishments as loudly as their competitors do.

The expat community in New York is small but tight-knit. Those that we met on the ground are keen to welcome more to the city and pass on their deep experience and advice to others so that New Zealand businesses can hit Manhattan running and make their mark on the city that never sleeps.

Good news for tourism and business

Despite being closed to visitors for two years, New Zealand continues to have a lot of friends offshore. Everyone who spoke to the delegation had fond things to say about our country and those who have not yet been innately like us and have a desire to visit – even if they couldn’t pinpoint exactly why.

There was an expectation from business delegates and those we spoke to that the direct flight between Auckland and New York will have a role in shaping how NZ’s economy and future opportunities evolve.

One US-based investor likened New York to a “multiverse” since there is so much going on in such a diverse city. He said the need to transit when travelling from the east coast of the US to New Zealand previously put a lot of people off coming to Aotearoa, and the air link will now “connect Middle-earth with the multiverse”, bringing immense opportunity along with greater capital, entrepreneurship, and talent.

Tim McCready was a guest of Air New Zealand on the direct flight to New York.