Friday, July 13, 2007

But wait there’s more: How I’m learning to love Kiwisaver

For selfish reasons, I have been thinking lately. What I have been mulling over is Kiwisaver and its relation to the NZX and what it might mean for its future. The stocks in my portfolio and yours are going to benefit.

Let’s get this straight, I am dead against Kiwisaver. It is compulsory, inefficient, costly, enormously complex, will have low returns for its participants and is damaging for business.

The big winners will be the Kiwisaver providers, the IRD, who have hired 400 more drones and other government lackeys and the recipients of our largess.

The NZX could be the big winner if overseas experience has anything to go by.

The US and most recently the Australian stock market have benefited greatly from the retirement schemes that run in both those countries. The companies on those countries listed indexes have performed consistently better than our listed companies simply because of the large amount of retirement money sloshing around with no place to go but investment.

True, a lot of retirement funds will be inefficiently filtered through fund managers before reaching the NZX and much of the Kiwisaver proceeds will go offshore to other exchanges but there will clearly be billions going into our stock market.

In the USA their 401ks have helped push stock fundamentals to levels above the Kiwi NZX and in Australia multiples are similarly higher.

The extent of many countries super funds and its contributions to their local economies cannot be understated but as these funds have gotten bigger they have even stretched their economic tentacles abroad, US funds through private equity have bought companies in Australia and New Zealand and other countries while Australian funds have bought up large in New Zealand. The biggest retirement money buyout in New Zealand being the Canadian teachers fund buyout of Telecom New Zealand Ltd [TEL.NZ] Yellow Pages for over $2 million NZ dollars.

How long it will take for the New Zealand super funds proceeds to have an effect on our market depends on the uptake of Kiwisaver by its citizens of course and the impact will also depend on whether Kiwis who start a new job opt out of the conservative 6 providers that are the default ones and whether current employees decide to open themselves up for more risk and more return by going with a provider such as Fisher Funds which is likely to focus on the NZX and ASX and its smaller growth companies.

Certainly there is already evidence that these types of funds have had an impact on our market. Government and quasi Government institutions through agencies such as the ACC and the Government super fund for state employees have helped bolster our market and its listed companies. Mostly the blue chips but also a few middle to smaller cap stocks have been targeted by these funds.

Our market has mostly been a disappointment over the years compared to foreign bourses and the absence, up till now, of retirement funds bolstering the NZX will put our market on more of an even footing, help stimulate IPO’s and channel funds away from the over inflated and the tax friendly property market.

Even though our market has done well over the last few years don’t imagine that it is overvalued as a whole. When you include the extra funds from retirement money that are to come on-stream over the coming years you could be forgiven for doing cartwheels if you are already in the market at the prospects of fund managers pouring mum and dads money into the NZX.

Kiwisaver isn’t a perfect tool or even close to a perfect tool for helping kiwis save retirement money, tax cuts would be a far better and cheaper solution and then we could put those funds directly where we like.

Having said that there are always winners and losers when it comes to Governments meddling in its citizens business and for those that are already invested in the NZX and its fund managers of course, they are the big gainers.

Kiwisaver @ Share Investor

Kiwisaver mediocre substitute for real saving

c Share Investor 2007