BNP Paribas focuses on offshore investor demand for NZX-listed companies

One of the world’s banking giants says there is pent-up demand from offshore investors wanting to invest in the New Zealand stock exchange (NZX).

French-headquartered BNP Paribas said it was the only global custodian bank on the ground in New Zealand providing securities services.

The bank said it would soon offer third-party clearing products and derivatives clearing products, which would allow BNP Paribas to clear on the NZX, and boost cash in the market by bringing in global brokers and by developing the derivatives market.

Third-party clearing allowed investors to clear trades through a third-party rather than directly with each other.

BNP Paribas New Zealand head of securities services, Iain Martin, said its clients found the NZ market “really interesting” but access to the market was “costly”.

“If we bring our third-party clearing product to New Zealand, the NZX will be able to have offshore participants become remote, to allow BNP to clear their flow.

“Doing that is going to increase the liquidity of the stock exchange, increase its depth and over time, will reduce those costs,” Martin said.

The types of companies listed on the NZX made it appealing to offshore investors, he said.

“A lot of renewables on the exchange, a lot of clean energy, the dairy market, the protein,” Martin said.

NZX chief executive Mark Peterson, said New Zealand was seen as a well-governed nation with low corruption, which made it attractive for investors.

“Especially when there’s lots of risk that can be taken in the world, sometimes investing down here can be seen as a risk-off type play,” he said.

Peterson said another list of derivatives would bring in a “range of benefits”.

“So when you think about equity investing at the moment, you’re obviously going to invest in the underlying securities and you build your securities through that. And that’s a pure cash market,” he said.

Peterson said derivatives brought in a couple of features.

“One, you can actually manage your risk at the end of the day … also it’s a very efficient way to get exposure,” he said.

NZ market not going backwards – NZX

The local share market has lost a number of listings in recent years, with more companies leaving the stock exchange than those coming in.

Last month, the NZX revealed share trading was at its lowest level in nine years.

“I don’t know whether I’d say [the market is] going backwards. Certainly, it’s challenging if you like, especially when market cycles go through their natural state, we haven’t seen a rising interest rate environment in New Zealand in many, many years,” Peterson said.

“Equities – generally from a portfolio theory point of view – do fall out of favour when you’ve got interest rates on the rise and when you’ve got higher inflation.

“It becomes more a tilt to fixed income and cash. We’ve been having to deal with that in the last couple of years,” Peterson said.

Looking back at the decade leading into 2021, Peterson said equities were in favour.

“We’re still a small market though at the end of the day. We’re a young-ish country by global standards.

“We’ve still got a very heavy agricultural bias to us. That actually still means there’s still quite a lot of co-operative type structurers in New Zealand which aren’t necessarily super predisposed to public markets,” Peterson said.

According to the news on Radio New Zealand

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