Tower Investments’ chief executive Sam Stubbs expects to see strong demand from local investors in the state-owned enterprises – if their partial privatisation eventuates – thanks to growth in KiwiSaver and to the inability of interest rates to keep up with inflation.
The Government has earmarked state-owned energy companies Meridian, Genesis, Solid Energy and Mighty River Power for partial sell-down, assuming National is re-elected at the November 26 general election.
“We believe that local demand for SOE privatisations will be stronger than many people are expecting,” Stubbs told a Tower quarterly investment briefing yesterday.
“If these stocks look like they are going to pay reasonable dividends in the long term, we think the mum-and- dad Kiwi investors will be encouraged to come back into the stockmarket in a way that we have probably not seen seen since the last major round of power company listings.”
He said demand for the SOEs would be driven by two “macro” elements: the rising tide of funds going into KiwiSaver accounts and what he called “financial repression” – when interest rates do not keep up with inflation.
Stubbs said the SOEs would represent long-term investment opportunities of the type Tower, and other institutions, would seek.
“They are long-term investments, which means that they are geared to growth in the economy,” he said.
“They look like they will pay reasonable dividends, and they have an excellent co-owner in the form of the government.”
While low interest rates would give the heavily indebted governments around the world some headroom to sort their problems out, he said they would make for a very tough environment for fixed-interest investors.
“They are going to receive a very low rate of return from their term deposits, so people who exist on those are going to have to take on more risk by getting involved in the equity markets and the property markets.”
Tower Investments is one of New Zealand’s biggest retail fund managers.
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