Craigs Investment Partners Gisborne manager Fraser Brown
FORGET the argument that the partial sale of State Owned Enterprises is the silver bullet to rebalance the government books.
Forget the argument that heartless foreign investors will hijack these companies and put up the price of our power.
Forget the argument that only “rich pricks” are going to be able to buy shares in these companies, then get even richer off the sweat and toil of long-suffering taxpayers.
What is going to happen is that the Mixed Ownership Model programme, coupled with the TAF (Trading Among Farmers) scheme for Fonterra, will revolutionise the way New Zealanders view shares and highlight the importance of shares when saving for, and living in, retirement.
This is critical because Kiwis, for the most part, are scared of shares.
Many think the stock market is a casino where only fat-cats in flash suits make money and the rest get shafted and go broke.
1987 scarred a generation of investors for life. In more recent times, poor advice and decisions — due to a lack of financial literacy — have created new reasons for poor perceptions of this asset class.
However, shares are absolutely critical for building a nest egg that can provide an income stream once people retire.
It is important to remember this, because 65 is no longer considered old. People can expect a long life once they finish work and National Super alone will not provide all the financial assistance needed in later years.
Currently Kiwis love property and cash-in-the-bank. This is reflected in our asset ownership structure, with about $200 billion invested in property and around $45 billion in the stock market.
Billions of dollars sit idle in term deposits and savings accounts, earning negative returns once adjusted for tax and inflation.
KiwiSaver and the MOM programme are the spearheads NZ Inc needs to lift financial literacy and transfer this money from these underproductive asset classes into asset classes that will grow our economy.
Investors need to have confidence in what they are investing in and they need options to diversify their portfolio, which is critical in reducing risk.
Shares in the energy companies and Fonterra will form what are called core stocks in investors’ portfolios, providing much-needed stability.
They will be owned by every KiwiSaver fund; by the Super fund; by ACC and by local fund managers investing on behalf of local clients; they will be owned by iwi; they will be owned by Mum and Dad investors directly.
They should be bought for the long term and they should be bought for the income they produce, not any short-term gains that may occur.
That is the essence of investing.
Buy for income, and capital gains will follow.
Once the New Zealand public has confidence in investing in core stocks, they will have confidence in investing in other companies; smaller companies that can be more volatile and, yes, more risky but which potentially earn higher returns over the long term. Companies like TradeMe, Ryman, Summerset, Ecoya, Xero and others.
Currently New Zealand investors use predominantly Australian and other global stocks to search for growth in their portfolios; in fact, anywhere from 30 to 60 percent of New Zealand portfolios are invested overseas. In most other countries, 90 to 100 percent of portfolios are invested locally.
This is the outcome we must seek. New Zealand investors investing in New Zealand companies growing New Zealand’s economy and supporting all New Zealanders in retirement.
The debate on the sales has been had, it’s time now to turn our attention to our future.