Chapman Tripp sees transitional year for capital markets as NZX beds in new strategy
By Paul McBeth
Feb. 13 (BusinessDesk) - NZX's return to basics and a rewrite of law governing financial advice should help reinvigorate the domestic stock market in 2019, leaving this year set to be a period of transition, says law firm Chapman Tripp.
The stock market operator signalled a strategy overhaul late last year, putting an emphasis on its core business with a view to support current and secondary issuers, drive secondary market activity and build its existing data revenue. Chapman Tripp's 2018 trends and insights report on New Zealand's equity capital markets welcomes the five-year plan, which includes encouraging greater on-market liquidity, and says if that's successful it could lure smaller brokers to the market and potentially develop a bigger listing pipeline.
Partner Rachel Dunne told BusinessDesk the NZX's new tack is targeting some of the more intractable issues, which if addressed could have "a really positive impact" if they're successful.
"We're calling it a bit of a transitional year, 2018, and hopefully things will improve from 2019 onwards," Dunne said.
The report also notes planned changes to law governing financial advice to facilitate greater access could remove "an unduly conservative" approach taken by some advisers under the current regime. Chapman Tripp acknowledges it's a difficult balancing act to protect investors while giving advisers enough room to recommend riskier assets, but if the right balance is found, "it may help reinvigorate trading in the shares of smaller issuers on the NZX," the report said.
Parliament sent the Financial Services Legislation Amendment Bill to the economic development, science and innovation select committee in December, which would require investment advisers to put the interests of their clients first and ditch clunky designations that have confused consumers.
Dunne said the existing regime had seen some advisers err on the side of caution to avoid "pretty dire" consequences, and as a result hadn't "put people into the right type of investments for their risk appetite."
The Chapman Tripp report predicts limited initial public offering activity following last year's moribund effort, but if the market remains strong through 2018, it could spur more interest later on.
The report noted Xero's exit from NZX to take a sole-listing on the ASX, but doesn't expect other listed companies to follow the software developer. The law firm also identified the number of small local software firms that have listed on the ASX over the NZX and said it may continue this year. However, if the NZX is successful in reinvigorating the domestic market, that could abate in 2019, it said.
Chapman Tripp said the silver lining for the local market in 2017 was the strong level of secondary capital raisings and the market's overall performance with the benchmark index hitting a new record.