Capital.com Research TeamWhat do you know about New Zealand economy? Aotearoa, or the Land of the Long White Cloud, continues to attract a significant portion of foreign investments thanks to its friendly business environment and robust economy. The positive investor sentiment is reflected in its steadily growing capital markets.
New Zealand Stock Exchange
The first New Zealand Stock Exchange was established in Dunedin in 1866. The initial shares belonged to gold mines during the gold rush of the 1870s. The exchange greatly contributed to the development of many important institutions, including banks, insurance, shipping and freezing companies.
Further local exchanges were opened in Auckland, Thames and Reefton in 1870s, Wellington in 1882 and Christchurch around 1900s. They all performed independently until 1915, when the New Zealand Stock Exchange Association was formed.
NZX exchange mainly operates equity, debt, derivatives and energy markets. Supporting the development of its core markets, it offers trading, clearing, depository and data services.
As of April 2019, the NZX had 164 listed securities in total with a market capitalisation of $147.8 billion.
New Zealand stock market outlook
In 2019, the New Zealand stock market has continued to outperform its close competitors amid the growing global uncertainty. The NZX 50 index, a benchmark New Zealand stock exchange index that measures the performance of the New Zealand stock market, has grown by 24.52% since January, according to Trading Economics. The trend is expected to continue to the end of the year. Trading Economics further reports that foreign direct investments in the New Zealand stock market reached an all-time high in the second quarter of 2019.
According to a 2018 report by the World Bank, New Zealand is the world’s best place to do business. The country has a tax regime that encourages global competitiveness coupled with an infrastructure that reduces the cost of doing business. This is evident in its economy, which has maintained a positive growth streak for the last 33 years.
A report by FocusEconomics predicts that the New Zealand economy will maintain a 2.5% annual growth up to 2020. While this is not groundbreaking, it is better than the EU, which is expected to grow by 1.4% in 2019 and 1.6% by 2020.
New Zealand boasts a industrialized free-market economy powered by a highly friendly regulatory environment. The industrialization has enabled the country to increase production and expand its exports to new markets in South East Asia. Likewise, the favorable business environment continues to attract foreign direct investments mostly from the US, Europe, and Asia.
The bottom line is a blossoming stock, debt, and currency markets as businesses continue to expand and explore new opportunities.
How to invest in New Zealand? Capital inflows from uncertain markets
The capital inflows in New Zealand appear to increase with the rising uncertainty in the US, the UK, and China. While the UK is grappling with Brexit, the US is suffering from its trade wars with China.
Likewise, the ongoing anti-government protests in Hong Kong have propelled capital flight to neighboring countries, including Australia and New Zealand. Reuters reports that the demand for real estate in these two countries has soared since the start of the political tension in Hong Kong.
But Australia is also facing challenges of its own with a stagnating economy and rising unemployment. This means that New Zealand remains to be the top destination for investment. The New Zealand Dollar remains strong and is expected to rise against the USD and the GBP in the coming months.
Trade New Zealand Dollar / US Dollar CFD
According to analysts at TD Securities, the NZD is the most undervalued in G10 currencies. Consequently, it is bound to make exports more profitable hence attracting more foreign direct investments. As is expected, the USD, the GBP, and the Yuan remains mostly unattractive with the rising political heat in respective countries.
Invest in New Zealand: NZX shares to watch in 2019
New Zealand stock market is prone to the short-term volatility resulting from the uncertainties in the markets around it. However, it is likely to maintain steady growth in the long term, unlike its stagnating competitors. As a result, this is the best time to buy for value investors. Speculators, on the other hand, may not gain much, given that the country is prone to short-term ripple effects from the uncertain global markets. The following are the top New Zealand stocks to invest in 2019.
City of London Investment Trust
The CTY Trust is listed in both the London and New Zealand stock exchanges and comprises of shares listed on the London Stock Exchange. Even with the uncertainty surrounding the UK markets, experts still believe that this could be the best buy.
For the last 27 years, the fund has been under the management of Job Curtis, a highly experienced portfolio manager. Curtis believes that the fund will sail through the Brexit uncertainty by investing in long term growth stocks with a global touch.
CTY has a track record of paying consistent dividends and is expected to pay higher in the coming years. According to Money Observer, CTY shares have produced an excellent yield of 4.8% paid quarterly. CTY is among the best performing low-cost funds you will find on NZE.
Ebos Group Limited
Ebos Group Limited is our top pick for the best New Zealand shares to buy in 2019. While the stock may appear pricey, it still has room for growth. Yahoo Finance reports that this stock has a P/E ratio of 24.7, which is above its market average of 18.6%.
A higher P/E ratio indicates that the markets believe that the stock will perform better than industry peers. While the stock may appear highly-priced, it is a cheap buy compared to the expected future earnings.
Also worth noting, Ebos Group Limited is a good dividend payer with a 12-month payout ratio of 73%. It has a steady cash flow relative to earnings meaning that its dividend payments are sustainable. This stock has been paying dividends consistently for the last ten years.
According to simply wallst, Ebos Group Limited has a forecasted annual earnings growth of 8.3%. This is below the projected industry average of 11.5%.
Smartshares NZX TOP 50 ETF
Smartshares NZ Top 50 ETF is another top New Zealand fund worth considering. The fund replicates the NZX 50 Portfolio Index which comprises of the securities of the top 50 companies on the NZX market. Consequently, the fund has a strong correlation with the New Zealand economy.
The fund has maintained a dividend yield of 3.64%, which is considerable, given its revenues and projected growth. Smartshares NZX top 50 ETF charges a small management fee of between 0.33% and 0.75%.
Bottom line
The New Zealand economy is bound for explosive growth, meaning that this is one of the best places to invest in. Named the No.1 in the world for ease of doing business by the World Bank in 2018, the country gained $876 million for New Zealand private equity and venture capital. Learn more about investing in New Zealand today and make your own picks for the rest of the year.
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