NZ Stock Exchange index changes more in line with NZ market

The NZSE decided last year to revamp its top-40 index to please investors and attract more companies to list with the exchange, under new chief executive Mark Walden.

However, the exchange initially copped criticism from some fund managers for trying to push through changes without enough consultation.

The NZSE originally proposed excluding any shareholding over 20 percent of a company as a "strategic stake" when it re- weights the index on March 3, but said today it had revised that down to holdings of 5 percent and over.

James Lindsay of New Zealand Guardian Trust said the changes were positive, and more realistic for New Zealand.

"Somebody building a strategic stake in a company would probably not go over that 20 percent mark, just because of the NZSE rules themselves.

"Anyone that takes a position in a company will be excluded for liquidity reasons, and obviously that will exclude managers like ourselves," Mr Lindsay said.

The NZSE will review the liquidity of companies on a holding-by-holding basis to see which stakes are over the 5 percent threshold.

The Government's 82 percent stake in Air New Zealand, leaving the market less than 18 percent of the stock, highlighted the market's liquidity problems.

"(Liquidity) did make it difficult to outperform the index because of abnormalities like Air New Zealand ... it was a very difficult stock to acquire and that caused some larger fund managers troubles over the last year," Mr Lindsay said.

Firms in the new benchmark index must have a minimum liquidity greater than half the overall market's median.

The top-50 will be a gross index, a change from the current capital index which does not include the comparatively high level of dividends companies pay shareholders.

The exchange also introduced the NZSE Portfolio Index, in which no stock has a weighting of more than 5 percent. The index aims to de-emphasise large stocks, particularly Telecom and number two Carter Holt Harvey.

"There was a call by some investors in the New Zealand market to have more of a broad-brush portfolio, and they've tried to cater for that," he said.

"It reflects some maturity in the exchange that they're willing to accept there are different types of investors in the market ..."

As an investment option, Telecom should be no more important than another company of reasonable size, he said.

Currently, Telecom is so large it stands as a proxy for the wider New Zealand market for overseas investors.

"New Zealand is a bit of an abnormal market as far as its weight towards Telecom as a percentage. There are few exchanges around the world with positions like that."

Overseas firms will be weighted on the proportion of revenue generated in New Zealand.

"The four key indices in the family, the NZSE-50, NZSE Portfolio, NZSE-10 and NZSE Mid Cap, will provide fund managers with benchmarks that are more accurate, easier to track and more liquid," NZSE markets development manager Geoff Brown said.

Changes to companies in the new index will be as follows, with the company's NZSE-40 weighting, its move up or down, and its illustrative NZSE-50 weight:

Auckland Airport - (4.23, up, 5.32)

Air New Zealand - (3.67, down, 0.45)

Briscoe Group - (0.33, up, 1.45)

Carter Holt Harvey - (7.65, up, 9.61)

Contact Energy - (5.75, up, 7.22)

F&P Healthcare - (2.43, up, 2.79)

Fletcher Building - (3.39, up, 4.26)

INL - (3.23, down, 2.24)

Lion Nathan - (4.73, down, 1.06)

Ports of Auckland - (1.76, down, 0.31)

Sky City - (4.30, up, 5.40)

Sky Network TV - (3.21, down, 0.88)

Telecom Corp - (21.37, up, 26.96)

Warehouse - (5.60, up, 7.04)

New stocks in the NZSE-50 Index include:

AXA Asia Pacific

Calan Healthcare

Capital Properties

Goodman Fielder

Hellaby Holdings

Hallenstein Glasson

Mainfreight

Michael Hill International

National Prop Trust

NZ Refining Co

Skellmax

Steel & Tube

Tourism Holdings

Wrightson

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