Investing in New Zealand
Beyond its reputation as a place of incredible natural beauty where substantially more sheep than people reside, the country of New Zealand possesses a variety of factors that make it an enticing investment destination. New Zealand boasts both high political and economic stability, which contribute to the country claiming The World Bank’s top spots for ease of doing business and starting a business. Are you interested in knowing more about New Zealand's investment opportunities? Learn about New Zealand exchange-traded funds (ETFs), real estate crowdfunding, and peer-to-peer lending - three popular ways to invest in the New Zealand economy.
The New Zealand Economy
Although the country is considerably smaller than and often overshadowed by its close neighbor, Australia, New Zealand has an impressive economy in its own right. New Zealand is one of the freest and most open economies, ranking 4th overall on the Index of Economic Freedom. Despite a relatively small population hovering around 5 million people, the country is one of the top 50 largest economies and has a high level of overall wealth, taking the 3rd spot globally for median wealth per adult (USD) with $231,260. New Zealanders are also highly capable of producing value, supported by a respectable GDP per capita of $48,802.
New Zealand has an industrialized economy with strong manufacturing and services sectors. However, agriculture is the foundation of New Zealand’s economy, with the country as the world’s leading exporter of commodities like concentrated milk, rough wood, butter, casein, and honey. New Zealand currently has 13 free trade agreements in force that primarily cover it in its geographic region, including its two primary trading partners, Australia and China. Furthermore, the country has concluded free trade agreement discussions with both the European Union and the United Kingdom. Once these trade agreements are ratified and go into effect, business between New Zealand and two of the world's premier consumer markets will be made much more efficient.
Investors can gain exposure to New Zealand’s leading companies like Xero or Meridian Energy through the New Zealand Stock Exchange (NZX). Although the NZX is comparatively small in relation to other major exchanges, it provides sufficient access to individual stocks and ETFs composed of some of New Zealand’s and Asia Pacific’s most innovative companies.
Investing in New Zealand with ETFs
ETFs are one of the best ways to add New Zealand exposure to an investment portfolio, as they are highly liquid assets that enable a simple means of diversification. New Zealand capital markets are open to foreign investors and shares of New Zealand ETFs can be traded through licensed brokerages that offer access to the NZX. All ETFs listed on the NZX are managed by Smartshares, an associated NZX company.
Of the available options, the Smartshares S&P/NZX 50 ETF (NZG) is best for those who want exposure through New Zealand’s 50 largest companies. The fund charges just a 0.2% annual fee, with a gross dividend yield of 2.44%. Other New Zealand ETFs to consider are:
- Smartshares S&P/NZX NZ Government Bond ETF (NGB)
- Smartshares NZ Cash ETF (NZC)
- Smartshares NZ Property ETF (NPF)
- Smartshares NZ Dividend ETF (DIV)
- Smartshares NZ Top 10 ETF (TNZ)
For investors whose brokerages don’t offer access directly to the NZX but do offer trading on the highly accessible U.S. stock market, the iShares MSCI New Zealand ETF (ENZL) offers broad exposure to large, mid, and small-cap segments of New Zealand’s market.
Investing in New Zealand Through Real Estate Crowdfunding
Of all the countries in the OECD, New Zealand is near the top of the list for most expensive housing markets relative to income. In fact, real estate has become so expensive in the country that homeownership is at its lowest rate in around 70 years. However, with any of the three real estate crowdfunding platforms in New Zealand, investors can obtain exposure to the New Zealand real estate market for as little as $500.
Investing in New Zealand Through Peer-to-Peer (P2P) Lending
Although it has been legal since the enactment of the Financial Markets Conduct (FMC) Act 2013 in 2014, peer-to-peer lending hasn’t taken off in New Zealand yet as it has in other countries. However, that doesn’t mean it isn’t a great opportunity to add diversity to an investment portfolio. The P2P lending market is well regulated in New Zealand, with platforms required to have proper licensing to provide services, have written agreements with lenders, meet reporting obligations, and comply with the Fair Dealing obligation of the FMC act.
There is currently just one P2P lending platform in New Zealand in the P2PMarketData database, requiring a minimum investment of $50. Unfortunately, the platform requires that an individual investor must be a New Zealand citizen or resident to participate at this time.
Investing in New Zealand Through Equity Crowdfunding
As one of the best places in the world for doing business, investing in New Zealand startups with equity crowdfunding is another intriguing investment opportunity. Equity crowdfunding platforms provide a cost-effective means for unlisted companies to raise capital by offering shares to the public while giving investors the opportunity to gain exposure to early-stage business ventures with high potential. Equity crowdfunding has been legal in New Zealand for nearly a decade, commencing in 2014 when the Financial Markets Conduct Act 2013 went into effect. Currently, three startup investment platforms are operating in New Zealand.
Risks of Investing in New Zealand
While New Zealand has many factors that make it a tempting investment destination, parking money in the country does come with some risks. As a faraway island nation, New Zealand is extremely reliant on other countries, particularly China and Australia. A whopping 32% of New Zealand’s exports make their way to China. The second largest portion of New Zealand exports goes to Australia, whose currency is also highly correlated with the New Zealand Dollar. If either China or Australia experiences economic woes, New Zealand is likely to as well.
Furthermore, because of strict immigration laws, New Zealand also has a skill and labor shortage. Skilled human capital is essential for a well-functioning, growing economy. Although New Zealand has a program in place to bring skilled labor into the country, there’s no guarantee enough laborers will immigrate to the isolated island nation to promote continued economic expansion.
The Bottom Line
Its strong currency, high wealth, and stable institutions make New Zealand a great place to do business and invest. Although naturally there are some risks of investing in the country as with any investment, overall New Zealand has a proven history of solid economic performance that consistently attracts foreign investment for a reason. For investors interested in the country, ETFs, real estate crowdfunding, and P2P lending are all great ways to add New Zealand exposure to an investment portfolio.
- The World Bank: “Ease of Doing Business: New Zealand”
- The Heritage Foundation: “2022 Index of Economic Freedom: New Zealand”
- Credit Suisse: “Global Wealth Report 2022”
- The World Bank: “GDP per capita (USD)”
- The Observatory of Economic Complexity (OEC): “New Zealand”
- New Zealand Foreign Affairs and Trade: “Free Trade Agreements”
- Bloomberg: “New Zealand is Among the World’s Most Expensive Property Markets”
- New Zealand Government Stats NZ: “Homeownership Rate Lowest in Almost 70 Years”
- The Guardian: “New Zealand will continue to cooperate with ‘more assertive’ China”