Go short, sport: tax change lends NZ short-selling a boost

More Australian fund managers will be able to short New Zealand, following the removal of a tax impediment that prevented most local stock-holders from lending shares.

According to Geoff Brown, products group manager for the New Zealand Stock Exchange (NZX), a number of Australian providers have shown interest in borrowing Kiwi stocks since a change to the tax law took effect on July 1 this year. Brown said the Australian operations of JP Morgan and BNP Paribas had been in contact with New Zealand institutional managers about creating share-borrowing programs. A typical program can earn the lending institution about $1 million a year. He said it was more likely that international managers would begin short-selling in New Zealand rather than local providers, who have not yet gained experience in the process because of the earlier tax constraints. “There is an easier opportunity [in New Zealand following the tax changes] for Australian institutions who already borrow stock,” Brown said. Until July 1 the New Zealand tax department treated most share-lending activity as a taxable event. The change was implemented following intense lobbying of the New Zealand government by the NZX over the last two years. However, Brown said the industry had been arguing for the change to stock-lending tax rules since 1988. “Short-selling will give more opportunity to investors and also enable better transparency for pricing,” he said. In the medium to long term Brown said it was likely New Zealand-based hedge fund managers would begin to operate. The NZX has also moved to take advantage of what is expected to be greater activity in the funds management industry in New Zealand with its purchase of the country’s major fund research company, FundSource. The recent introduction of workplace superannuation scheme KiwiSaver and new tax rules favouring managed investments have sparked renewed interest in the floundering New Zealand funds management industry.