Advisers not sold on SOE miracle

The partial sell-down of State Owned Enterprises shouldn't be seen as a cure for New Zealand's ailing share market, financial advisers say.

Thursday, May 3rd 2012, 9:49PM 5 Comments

by Niko Kloeten

The government has launched a website that provides information on the government's share offers through the IPOs of state-owned power companies Mighty River Power, Genesis and Meridian and coal miner Solid Energy, as well as a reduction in the government's stake in Air New Zealand

While the issue is a hot one politically, financial markets are hoping the "mixed ownership model", which is expected to raise between $7-9 billion for the government, will give New Zealand's share market at least a temporary boost.

However, Good Returns has spoken to a number of financial advisers who have questioned how much long-term benefit New Zealand's stock exchange will get from the listings.

"Despite the inflows fund managers are getting from KiwiSaver, turnover in the New Zealand stock market is derisorily low," said one adviser, who compared the IPOs to previous listings of energy companies on the NZX.

"Did the listings of Contact and Vector set the New Zealand stock market alight in the long term? Aren't Mighty River Power, Genesis and Meridian just like Contact?

"However, I've got no doubt investment bankers and stock brokers are rubbing their hands together and there are lots of individuals that think they are going to make a quick killing by buying into these things and then selling them to institutions for a profit."

Another adviser said the SOE floats were a welcome development and good for mum and dad investors, but would do little to add to the scale of the New Zealand market.

"The guts of it is we're small - if you look at each of the SOEs one of those big super funds could buy the whole thing."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 4 May 2012 at 9:31 am Ian said:

I can't see any stock broker "rubbing their hands" when the website clearly states that "a sharebroker is not required" to make a purchase.
What really worries me is that there is little comment on the potential investor seeking financial advice before participating. Lack of professional advice can often lead to the greed factor taking over particularly if the media suggests that there is a quick dollar to be made. This does nothing to support long term growth and participation in the capital markets.

On 4 May 2012 at 11:26 am Mike said:

"What really worries me is that there is little comment on the potential investor seeking financial advice before participating. Lack of professional advice can often lead to the greed factor taking over particularly if the media suggests that there is a quick dollar to be made."

Surely, the overarching principle of Caveat Emptor should still count for SOMETHING. If some people CHOOSE to proceed without the awesome wisdom of an AFA, they are entitled to do so.

On 4 May 2012 at 2:28 pm Kevin Black said:

This looks like a rerun of Maggie Thatcher's efforts to get the UK public to take some interest in owning shares. Most people did buy their allocated amount and quickly dump them back on the market for a reasonable return. Did they all become committed stock market enthusiasts? No, but it certainly gained a much higher percentage of future investors.

On 4 May 2012 at 3:57 pm Ian said:

"Surely, the overarching principle of Caveat Emptor should still count for SOMETHING".

Another free market supporter, might as well close down the FMA and deregulate, forget developing professional standards in the advice industry an efficient market will resolve all our problems. Freedom of choice is always there good advice has to be sort.

On 7 May 2012 at 3:17 pm Johnny said:

Or sought, even.