How to trade or invest in the NZX

​The New Zealand Stock Exchange (NZX) is the largest sharemarket by market capitalisation in New Zealand. In this guide we look at how you can invest or trade in the NZX using shares, funds and ETFs. We also explain what moves the NZX50 and highlight recent company bankruptcies to help you avoid investing in a failing company.

In this guide we explain:

• Trading vs Investing
• How to Trade on the NZX
• How to Invest on the NZX
• What Moves the NZX Index?
• How to Invest or Trade on the NZX
• Five Failed NZX Companies (and what you can learn from them to avoid making the same mistakes)

The NZX isn’t like an established world market, such as the Dow Jones or FTSE. Because of the small size of the NZX there is less liquidity and this means there are less options to trade. Also although legal in New Zealand, there is no shorting companies (i.e. borrowing shares from institutions for a fee then selling them on the NZX and betting that the share price will be lower in the future when they are bought back). Nor are there financial derivatives such as spread bets and credit default swaps. The NZX is, by comparison, much more straightforward.

Let's take an example. If you want to trade in Westpac, you buy and sell shares in Westpac. There are no Westpac short selling, CFDs or spread betting. Any trading is done between 10:00am - 4:45pm Monday to Friday. You’ll need to pay for your trade upfront – for example, if you want to buy $2,000 of shares in A2 Milk, you will need to pay first. Some brokerage firms, such as ASB Securities offer margin lending which lets you borrow money to buy shares – this can be risky if the value of the shares fall. 

If you want to invest on the NZX you can do so by:

1. Buying any share listed on the NZX (for example, Air New Zealand, The Warehouse Group or A2 Milk)
2. Invest in an ETF which tracks the NZX (for example, an NZX50 ETF which follows the value of the NZX50 - the top 50 New Zealand companies by market capitalisation)
3. Buy into a managed fund which invests in the NZX (such as a NZX50-specific investment fund) and/or invest in a NZX-focused KiwiSaver fund 
4. You can also invest in NZX Ltd, the company which operates the New Zealand share market, as it’s also a listed a company. Such an investment does not give you exposure to companies like an ETF or managed fund would.

Whatever you invest in, the aim is to hold your shares until they rise in value to a level you determine is profitable. If you invest into shares or ETFs which are income-producing, you’ll receive dividends from time to time as the company returns profits to its owners. To invest in shares, you’ll need to pay upfront for the value of the purchase.

With the NZX being free of derivatives and anything related to exotic trading, NZX ‘trading’ is limited to buying and selling shares in individual companies. For that reason, most individuals, financial institutions and actively managed KiwiSaver funds use the NZX to invest. There are four ways to do this:

Day after day, the NZX50 moves up and down, driven by changes in each company’s share price. The value of individual companies’ shares will have an effect on the value of the NZX50 because it is a price-weighted index. Shares that increase in value will increase the value of the NZX50 proportionately to their value in the market. For example, a 2% rise in the value of A2 Milk (a large NZX50 company) will have a greater effect on the NZX50 than a 2% rise in Argosy Property Ltd (a smaller NZX50 company). 

​There are a number of factors which move each company’s share price, including:

Economic events
Economic events such as the COVID-19 fallout have a direct effect on the profitability of each company. Some will be winners, for example Fisher & Paykel Healthcare (which makes ventilators) and A2 Milk (which produces food products). Some will be losers, like Air New Zealand and Tourism Holdings, which rely on foreign visitors.

Press releases
Investor announcements from companies will move share prices, such as NZME (owner of the NZHerald and radio stations) laying off hundreds of staff, or The Warehouse Group closing stores. If it’s good news, share prices generally go up, and vice versa.

Earnings results
Every six months, every company listed on the NZX has to publish financial results. If profits are down and/or the future looks bleak for the company, then the share price will usually fall. It’s all about expectations – generally, companies that are doing well and continue to sustainably grow will be favoured (and see increasing share prices). Those that underperform and don’t deliver on what they promise will have decreasing share prices.

Interest rates
If the Reserve Bank of New Zealand lowers interest rates, this is generally good for business who can borrow money at a cheaper rate. This means businesses can invest more in their future and grow, which usually means higher profits. For these reasons, lower interest rates leads to higher share prices.

There are many ways to access the NZX, and with platforms like Sharesies, InvestNow and Simplicity, it has never been cheaper. MoneyHub doesn’t offer financial advice in any form, so the best resources to learn about individual companies listed on the NZX include:

• BusinessDesk.co.nz (free to subscribe to emails with a detailed daily distribution of the day’s top business stories)
• NBR.co.nz (a paid site, with insightful reporting on NZ companies)
• Interest.co.nz (more focused on property, this free-to-read publication is useful for background)
• Sharechat.co.nz (a forum discussing companies listed on the NZX).

New Zealand has had its fair share of failed shares that were once regarded as innovative, must-invest companies. We outline five recent disasters and summarise why they failed. Generally, it’s wise to never believe what a company is promising until they have a proven track record. But as is shown below, companies fail for many different reasons. Also, many don’t fail but see their share price fall from $1 or $2 to 10 cents, and stay that way forever. Investing isn’t without its risks, and for that reason never invest more than you can afford to lose.​​