KiwiSaver not too big for sharemarket (yet)

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Fears that KiwiSaver could swamp New Zealand's small stock market are a long way from being realised, according to new research on the sector.

Friday, November 4th 2011, 3:57PM

by Niko Kloeten

Morningstar's Sector Wrap, which shows Australian-invested funds didn't have a great year, also shows that, while it is growing fast, KiwiSaver is far from being big enough to cause pricing distortions on the NZX.

"The KiwiSaver retirement savings scheme is the only area of the New Zealand investments industry consistently attracting net inflows," the report says.

"Several commentators have suggested that the weight of money flowing into KiwiSaver options could put further pressure on the already constrained New Zealand sharemarket, driving up share valuations."

In the four years that the KiwiSaver scheme has been in operation, over $1 billion has been allocated to the New Zealand sharemarket, according to the report.

"Over the 18 months to 30 June 2011, the dollar value traded on the NZX was approximately $35.5 billion. KiwiSaver has attracted inflows of $3.67 billion.

"At an average allocation to New Zealand equities of 12.5%, KiwiSaver flows over these 18 months therefore represented less than 1.5% of market volume.

"This suggests that despite there being significant KiwiSaver inflows to allocate, the proportion flowing into the New Zealand sharemarket is reasonable compared to both total market capitalisation and trading volume."

The report found that over the past two years, the percentage of KiwiSaver assets allocated to New Zealand equities has increased from an average of 10.4% to 12.35%.

From just under $100 million at 30 June 2008, funds allocated to New Zealand equities increased tenfold to over $1 billion by 30 June 2011.

"Although not especially significant in the context of a $50.0 billion market-cap, the effect of the regular KiwiSaver funds flows is relentless."

During this same period, KiwiSaver funds roughly tripled their allocation to Australian equities from two to six percent, with funds increasing over 25 times from about $20 million at 30 June 2008 to more than $500 million by June 30.

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

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