NZSE 50 (New Zealand Stock Index) Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The NZSE 50 (also known as NZX 50) is the group of 50 top companies measured by free-float adjusted market capitalization listed on New Zealand’s stock exchange. According to New Zealand Exchange (NZX) guidelines, the free float is determined by excluding blocks of shares greater than 20 percent and blocks between 5 and 20 percent, which are considered strategic. The weights of corresponding stocks are determined on the basis of the resulting free-float market capitalization. This adjustment is considered to provide an index that closely reflects the main index because it is designed to represent the composition of stocks traded.

The NZX 50 is available as a total return and as a gross index indicator. Companies included in this headline index are among the nation’s premium brands, long-established heritage companies, and several foreign firms. These companies—which include Telecom, Air New Zealand, Fisher & Paykel, and ING—are part of more than 200 companies that form NZX’s premier equities market, formerly known informally as the Main Board. Aspects of the old system of indices are still present in the new system and specifically the NZX 50. Thus, it is important to consider the major changes in New Zealand’s stock exchange in general and development of the major indices in particular.

History Of NZX

Before 2002, NZX’s predecessor, the New Zealand Stock Exchange (NZSE), was a mutual organization owned by its member broking firms. This organization was the successor of the Stock Exchange Association of New Zealand and the Auckland, Wellington, Christchurch-Invercargill, and Dunedin Stock Exchanges, established under the Sharebrokers Amendment Act of 1981. New Zealand’s Stock Exchange became a public company, following its demutalization at the end of 2002 to a limited liability structure: NZSE Ltd. Former members of NZSE were each issued 10,000 shares in the new company. This transition became official when the company changed its name to New Zealand Exchange Ltd. (NSX). In turn, the NSX’s markets were renamed the NZSX Market (stock market), the NZAX Market (alternative market), and the NZDX Market (debt market). NZX began to trade and list securities on its main equity market, the NZSX, in June 2003. These changes placed the NZX in the dual position of being a listed company on its own exchange and regulating the conduct of the exchange.

Since the middle of 2005, the NZX Centre has been located in the nation’s capital city of Wellington, housed in the renovated Odlins Building on the waterfront. Other important developments that have shaped New Zealand’s stock exchange include the move to a national computerized screen trading system in June 1991, ending the open cry pit. Eight years later, this system was updated by the FASTER trading system, and in 2001, the internet-based eFaster facility was introduced, allowing direct online access to the market.

Before its introduction in November, the stock exchange’s trading hours were extended on September 1, 2001, to be in line with market trading in Australia and the United States.

Index System

Developments in the old index system influenced the new system, which still exhibits many of the features of the previous one. Until 2003, the NZSE 40, with a base value of 1,000 (as of July 1, 1986) was the most widely quoted index of New Zealand stock market prices. Stocks included in this index were chosen based on their market capitalization, and the index’s composition was reviewed quarterly. A capital and a gross index were calculated for this index, but the capital index was generally referred to as the NZSE 40 index. From March 3, 2003, the NZSE 50 replaced the NZSE 40 and was later renamed the NZX 50 and NZX 40, reflecting changes in the name of the stock exchange company and its equities board.

Due to the high proportional representation of single companies in the index, Telecom in particular, the NZX 50 Portfolio Index was introduced. This index caps the weights for large companies in the NZX 50 to 5 percent of the index market capitalization. Both the NZX 50 and NZX 50 Portfolio indices’ base value were set at the NZSE 40 closing value on February 28, 2003.

In addition to these indices, the NZSX 15 (now the NZX 15) was launched on February 9, 2004; it comprises the 15 largest and most liquid domestic securities listed on the NZSX market. Constituent companies are weighted by free-float market capitalization, but the weighting of any security in the index is capped at 30 percent. This index has a base value of 3,000 as of October 1, 2001, and its composition is reviewed every six months.

Focused Indices

The exchange has several focused indices, including the NZX SciTech Index, which highlights the performance of companies with significant business interests in the development and commercialization of new technologies, and the NZX 10 Index, which provides a measure of the price trends of New Zealand’s top 10 listed companies, excluding overseas stocks.

Other indices—the NZX MidCap Index, the NZX SmallCap Index, and the NZX All Index—are also monitored to evaluate the performance of New Zealand’s stock exchange market and constituent companies.

Bibliography:

Bowden and J. Zhu, Kiwicap: An Introduction to New Zealand Capital Markets (Kiwicap Research, 2005);
Grant, Bulls, Bears & Elephants: A History of the New Zealand Stock Exchange (Victoria University Press, 1997);
King, The Penguin History of New Zealand (Penguin, 2003);
NZX, New Zealand’s Stock Market, Stocks and Shares Web site, www.nzx.com (cited March 2009).

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