Fund Managers’ Mixed Views on SOE Ownership Restriction

News Release

4 May, For Immediate Release

Fund Managers’ Mixed Views on SOE Ownership Restriction

A majority of New Zealand’s leading fund managers believes restricting overseas ownership in the State Owned Enterprises (SOEs) being floated later this year will not impact the attractiveness to investors of these floats to any significant degree.

Russell Investments’ quarterly survey of fund managers in April found strong support for the float. However, opinion differed on the impact of the Government’s proposed cap on overseas ownership of the 49% of shares it will sell in individual SOEs shares to just 10-15% of the total shares on offer.

“The indifference by a number of managers may be because foreign ownership of New Zealand companies is typically around 15% anyway,” says Russell New Zealand’s Head of Consulting, Daniel Mussett. “With the majority of demand also likely to be local it was also thought that the initial impact of the restriction on overseas ownership would also be muted.

“However, there is also a significant minority, just over 40% of our surveyed fund managers, that believes the restriction worsens the investment case as liquidity would be reduced and prices would be lower than without the restriction.

“As one fund manager put it: ‘Foreign investors are expected to be the main price makers so too few foreign investors participating would indicate a cheap investment.’”

Mr Mussett says if that were the case then any restriction may act as an anchor on prices, a situation that would prevent New Zealanders from maximising their returns from investments in the SOEs.

The Russell Investments fund manager survey is now in its sixth year and the April survey shows fund managers expect stronger economic conditions and they remain bullish about both New Zealand and international equities.

The majority of managers also consider our equity markets as either fairly valued or slightly undervalued with one manager noting: “the strong dividend skew (in New Zealand) will help in providing a solid base for our market.”

Another manager noted that: “the apparent recovery in the United States and the prevalence of company share buybacks (that signal companies consider their equity undervalued) lend credibility to investors’ bullish sentiment.”

Mr Mussett notes that this bullish sentiment is “likely to be driven by the view that, despite all the concerns on global markets, equities offer better return prospects than bonds. And yet the context in which we are investing cannot be forgotten. There remain significant troubles in various economies around the world. There are many scenarios and each could lead to very different outcomes.”

Property is the other asset class that manager’s have confidence in at the moment while both New Zealand and particularly international bonds remain unattractive.

Business confidence is growing according to the New Zealand fund managers with most citing the delayed Christchurch rebuild as soon delivering positive growth, mainly from the insurance payments, rather from the rebuild itself.

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