Confidence in New Zealand’s financial markets has fallen slightly, with more people uncertain about how effectively the market is regulated.
The Financial Markets Authority’s annual survey into the public’s attitude to financial markets shows 66% of investors were confident in New Zealand’s financial markets, slightly down from 69% a year earlier.
The score remains higher than the surveys carried out from 2013-2016.
Eighty-four per cent of New Zealanders have some form of investment, and on average investors have two to three investment types each.
Those most likely to be confident in the markets and its regulation are those with managed funds or shares.
They are likely to be older, more experienced investors, male and aware of the FMA’s watchdog role.
The main reasons given for confidence was stability of the markets, they “haven’t heard anything bad” and a stable economy.
FMA chief executive Rob Everett says it’s good to see confidence, while dipping slightly, was broadly stable despite significant issues offshore and in local financial services.
Issues that could have shaken investor confidence include uncertainty about a potential trade war, volatile global markets and the bad conduct and culture of some major Australasian financial institutions.
“We were a little surprised it hadn’t dropped more, particularly given the global backdrop but I suppose, if you’re on the ground in New Zealand, the NZX50 is still at high levels and the economy looks stable and unemployment’s low, so it may feel like those issues haven’t manifested here yet.”
If global markets start to act in a way that people notice their KiwiSaver balances decrease, or the local economy starts to suffer, then he would expect confidence to fall further next year.
However, confidence the markets are effectively regulated is significantly lower, at 48% from 60% last year.
The FMA says this does not mean a higher proportion of New Zealanders are not confident but rather more indicating they are uncertain how confident they feel.
It says this could be explained by a change to the survey question in 2018, in which any explanation about who is responsible for regulation was removed.
Mr Everett also points to recent corporate failures such as Pumpkin Patch, Wynyard Group, Fletchers and CBL.
“There have been some hits to relatively household names in the New Zealand markets so we think possibly some of those collapses or issues, plus noise around the Australian Royal Commission [into banking] may have contributed to a sense that corporates and financial institutions weren’t being as tightly regulated as they should. We saw that flow into some of the comments as well.”
The FMA needs to help people understand while companies go under and while there will “inevitably” be behavioural issues in the corporate sector from time to time, it must explain “while you can’t eradicate issues altogether, you can create an environment where you’re confident someone is watching and is on top of it,” he says.
KiwiSaver-only investors lack knowledge
KiwiSaver members with no other investments lack confidence and knowledge of the financial markets.
Almost 80% of respondents aged between 18-29 have a KiwiSaver investment but the survey suggests this age group – particularly women – is among the least knowledgeable or confident.
45% of KiwiSaver members had no other investments. These investors were more likely to be unsure about whether investment materials they received were helpful.
KiwiSaver-only investors were less knowledgeable about investment principles like diversification, or the risk-return trade-off.
One KiwiSaver investor criticised the materials offered by their provider: “A pamphlet/booklet with banking jargon is not helpful.”
The high disengagement with KiwiSaver and other financial products needs to be addressed, Mr Everett says. This includes providers changing their language to better communicate with younger people.
The FMA boss is concerned people are leaving school “without even a base understanding of core financial products or risk and return in investments,” and it’s the earlier the better for this education.
High-risk investments least understood
The survey, of 1000 New Zealanders during May, highlights the least understood investment types are those associated with high risk.
New Zealanders are more knowledgeable about the risk level associated with term deposits, residential property and KiwiSaver funds than investments like hybrid bonds, property syndicates and equity crowdfunding.
Two-thirds of investors received investment materials but just 55% found the information helpful (although up from 53% last year). Those that did find the information useful were more likely to be confident in New Zealand’s financial markets and its regulation.
FMA’s survey also found:
• Men are more likely to be ‘very confident’ in New Zealand’s financial markets (10% vs 4% of women).
• New Zealanders who are unemployed are more likely to be ‘not very confident’ in the financial markets (37% vs 19% of the total sample).
• Consistent with previous surveys, investors are more confident than the general population.
• New Zealanders aware of the FMA (41%) are far more likely to be confident in the financial markets.
• Confidence in the financial markets has remained fairly stable compared to a year ago across all investment types, except for superannuation schemes (other than KiwiSaver) where there has been a slight drop in confidence.
• Households with an annual income between $100,000-150,000 are more likely to say their confidence level has remained the same over the last year.
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