Government bonds attract foreign investors to New Zealand

Foreign investors buying New Zealand government bonds drove a $5.8 billion net inflow of investment capital into New Zealand in the September 2019 quarter, Stats NZ said today.

This inflow in the financial account was made up of a $4.3 billion net inflow of foreign investment in New Zealand and a $1.6 billion net divestment from New Zealand investment abroad.

The inflow of foreign investment in New Zealand in the September quarter was driven by a $7.2 billion inflow of portfolio investment. This follows a $6.2 billion outflow in the June 2019 quarter when foreign investors sold New Zealand shares and debt securities.

“During the September quarter foreign portfolio investors bought central and local government debt securities and banks issued debt securities offshore,” international statistics senior manager Peter Dolan said.

“Examples of debt securities are government or corporate bonds. New Zealand government bonds are usually considered low risk, which can make them an attractive investment for foreign investors.”

The inflow of portfolio investment was key to the continuing upward trend in stocks of New Zealand’s portfolio investment liabilities, up $14.8 billion (6.7 percent), to a new high of $236.3 billion at 30 September 2019.

Portfolio investment liabilities were the largest inflow of foreign investment in New Zealand this quarter. Foreign direct investment also recorded a $909 million inflow in the September 2019 quarter.

“This included the sale of Westland Dairy, reported publicly earlier this year, as well as banks and other sectors reinvesting their earnings. There was also activity in the telecommunications and forestry industries, however, this had little net impact on the overall flows,” Mr Dolan said.

New Zealand investors reduced their holdings of assets abroad by a net $1.6 billion.

Component Assets Liabilities
Direct investment -489000000 909000000
Portfolio investment 1708000000 7219000000
Financial derivatives -991000000 -1368000000
Other investment -597000000 -2482000000
Reserve assets -1202000000 0

These net financial account flows were the main driver for a larger net international liability position, up $6.1 billion overall to $172.8 billion at 30 September 2019, 56.3 percent of GDP. This compares with 54.9 percent of GDP at 30 June 2019.

Current account

New Zealand’s seasonally adjusted current account balance was a deficit of $2.7 billion in the September 2019 quarter, $339 million wider than the June quarter’s deficit.

The larger deficit was mainly driven by a fall in exports of goods, down $399 million. Logs, wood, and wood articles led the fall, followed by milk powder, butter, and cheese.

A small decrease in the services surplus also contributed to the wider current account deficit this quarter.

New Zealand’s primary income deficit was $2.2 billion in the September 2019 quarter, $159 million smaller than the June quarter. The main impact was from investment income. Earnings from foreign investment in New Zealand fell $253 million, while income earned from New Zealand investments abroad fell $76 million.

/Stats NZ Public Release. View in full here.