Despite its small size, New Zealand has a thriving and growing economy. In addition to that, the country is considered a safe haven. In this post, we analyze the 3 most important stock market indices in New Zealand.
New Zealand is one of the two Western countries in the Asia Pacific region, along with Australia. With a population of about 5 million people and growing, New Zealand enjoys a privileged demographic situation in the West.
Not surprisingly, a healthy demographic picture is a positive factor for the performance of New Zealand’s economy, which has grown significantly over the past four decades. Nowadays, the country’s GDP per capita is at similar levels to those of Western European countries, such as the United Kingdom and Germany.
When it comes to its public finances, the government of New Zealand has a lot less debt than most other developed countries. This is good news for investors, as it indicates a lower risk of tax increases in the near future.
The New Zealand Stock Exchange, known by its acronym NZX, is based in Wellington, the capital of the country. However, it also has a presence in Auckland, New Zealand’s main financial centre. New Zealand´s stock market origins can be traced back to the gold mining activity that took place in the nineteenth century.
New Zealand’s economy stands out, among other things, for its highly productive agriculture and exports of raw materials. Construction is also an important economic pillar, due to the steady increase in the country’s population.
All of that makes investing in New Zealand interesting for a lot of people. However, because the country does not have many well-known corporations abroad, investing passively through an ETF can be a very good alternative.
To that end, we analyze New Zealand’s top three stock market indices.
The S&P/NZX 50 is the main stock market index of the New Zealand Stock Exchange. It was introduced in 2003 under the name NZSX 50. However, the index was renamed in 2015 when the NZX and S&P reached an agreement to calculate and promote the country’s indices jointly.
This index includes the 50 largest listed companies in New Zealand. Because it is a country of only 5 million people, most of these companies are relatively small compared to the corporations that dominate the global stock market.
As a consequence of that, the New Zealand stock market is not as crowded as other countries. Within the index, stocks are weighted based on their market capitalization adjusted for free float. To be specific, shares held by any shareholders who control at least 20% of a company or whose shares are considered strategic are not taken into account as they are considered part of the free float.
The official index is published in New Zealand dollars (NZD), although it is also possible to find versions of the index in other currencies, such as US dollars.
For those looking for additional information about the S&P/NZX 50, here is the link to the S&P Dow Jones website.
S&P and the New Zealand Stock Exchange calculate another index with the goal to more closely follow the largest corporations in the country. Thus, the S&P/NZX 10 is a stock index composed of the 10 largest holdings in the S&P/NZX 50.
For this reason, it shows the performance of the most important companies in New Zealand. The S&P/NZX 10 also facilitates the creation of passive investment products.
It should be noted that the methodology of the S&P/NZX 10 is basically the same as that of the S&P/NZX 50. For more details, you can visit S&P´s website.
MSCI New Zealand
Finally, the US company MSCI calculates a stock market index for New Zealand. The MSCI New Zealand is made up of all New Zealand companies that are part of the MSCI World index of developed markets.
Because the criteria to join the MSCI World index stipulate a significant minimum market capitalization, the MSCI New Zealand has a very small number of stocks in it, so it can be considered an even more concentrated index than the S&P/NZX 10.
However, we should highlight that New Zealand has been one of the best performing stock markets over the past two decades.
For more information about the MSCI New Zealand, you can find it here.
I hope you found this post about New Zealand stock market indexes helpful. If you want to learn about the stock indexes in Australia, visit the following link:
Top 4 Stock Market Indices in Australia
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