An overview of the New Zealand share market and whether it can be considered a secure destination for investment funds

An overview of the New Zealand share market and whether it can be considered a secure destination for investment funds
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Unlike the situation in the United States and Europe, New Zealand companies more often than not pay out a significant proportion of their earnings as dividends. Consequently, investing in New Zealand feels rather like the “good old days” for many international investors. Investing long term for the dividend income used to be the predominant reason that international investors got involved in shares. But around 1970 the focus became capital growth, a focus that has remained predominant internationally to this day.

One of the good things about New Zealand shares is that paying out a high proportion of earnings to investors has not prevented capital growth. Some of the biggest dividend payers, like banking, utilities and telecommunications groups, have experienced significant growth over the past few decades. They are still doing so. Thus, you could claim – as many experts do – that investing in major New Zealand shares gives you the best of both worlds: great earnings potential plus capital growth.

Strong dividend payments in New Zealand have, in fact, regularly gone hand-in-hand with strong earnings growth. Consequently, although the NZX hasn’t always performed quite as well as its U.S. equivalent, in percentage terms New Zealand investors who re-invested their earnings would have had just as good a return, and in many cases a rather better one, than their overseas counterparts.

Many New Zealand investors, too, overlook the impact that dividends have on their portfolios. When the stellar growth in percentage terms that we’ve seen over the past 5 years slows, as it eventually must, good dividends will contribute greatly to the continued performance of those portfolios. In short, for many, New Zealand could well represent a ‘Back to the Future’ opportunity. It should certainly not be overlooked when selecting a share market in which to be involved.

Fortunately, the Global Credit Crunch had relatively little effect on the New Zealand banking sector. A striking contributory cause was the health of the New Zealand financial market, due largely to the quality of its lending sector. In New Zealand, this has faced much sterner regulation and control than had, regrettably, become the norm in many other OECD countries during the property boom years of 2002-2007.

Another huge attraction today, when considering safety for global investors, is New Zealand’s secure social and political environment, which has very largely stayed constant throughout the past 150 years. Politically, both of the two main political parties neatly reflect the populace, in that they are just a smidgen to the left or right of centre, which is pretty much how New Zealand sees itself. This is not a country that encourages or in fact tolerates extremists.

New Zealand is also considered one of the most honest and least corrupt places in which to do business; this is a well-deserved reputation, of which New Zealand is passionately protective. All in all, there are few places that could be considered a better place in which to invest your funds.

For these reasons, since the 1990s, New Zealand has increasingly found itself a destination of choice for global investors. They have been well rewarded for their faith, particularly those from Japan and China, who have flocked to place their household savings into NZ currency issues, reaping an interest rate well above the domestic offering. Chinese investors have also been buying huge tracts of good NZ farmland as well as residential homes in Auckland, New Zealand’s largest city.

Global investors who want to enjoy the attractive rates of New Zealand without exposing themselves to exchange rate risk now have a further option: our easy to open Vivier & Co deposit accounts.

Vivier and Company Limited (‘VCL’) is incorporated in New Zealand with registered number: 1130618. VCL is a member of Financial Services Complaints, a New Zealand Government approved Dispute Resolution Scheme, and maintains an insurance policy with Standard and Poor's A+ rated insurers, providing a NZD 10,000,000 indemnity on any one claim/loss in the aggregate.

Luigi Wewege with the Governor-General of New Zealand – Sir Jerry Mateparae
Luigi Wewege with the Governor-General of New Zealand – Sir Jerry Mateparae
Vivier Banking & Financial Services

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