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The changes bring the NZSE's headline index into line with international best practice and better reflects the performance of the New Zealand share market. It has been designed with the original principals in mind, namely:
- greater investibility,
- increased breadth; and
- better representation of current market performance.
The NZSE50 framework being launched today incorporates the following final changes:
- A three tier approach to weighting, where a modified free float adjustment ensures a more representative composition.
- A change in the treatment of overseas issuers to allow those who have liquidity in this market to have their weighting better reflect the full extent of their participation in the New Zealand economy by percentage revenue earned rather than percentage of shareholders on the register.
- A change in the method for measuring liquidity, which will see the median of each day's trading value divided by the free float market capitalisation. This will give a more consistent measure.
The NZSE is also introducing the new NZSE Portfolio Index, which limits the dominance of larger companies by capping stocks at 5% of the index. This addresses one of the key concerns for retail investors worried about the headline index being dominated by one or two large companies. The makeup of the NZSE Portfolio Index is outlined in detail in the accompanying Indices Framework. "We've developed a family of indices that we believe will maximise investibility and better reflect true market performance," said Geoff Brown, NZSE Ltd Market Development Manager. "It's a significant development for New Zealand's capital markets, one which will boost performance and have an enormous impact on the companies profiled in them."
"The four key indices in the family, NZSE50, NZSE Portfolio, NZSE10 and NZSE Mid Cap, will provide fund managers with benchmarks that are more accurate, easier to track, and more liquid. Retail investors will find it easier to measure both market performance and the performance of their individual portfolios, while smaller companies joining the headline index have the opportunity to gain critical market exposure."
The launch of the new NZSE10 and NZSE Mid Cap Index will be held until 3 May 2003 to avoid any price pressure that may be created by the introduction of the NZSE50 and NZSE Portfolio Indices.
NZSE will continue to calculate the NZSE40, NZSE All, NZSE SCI and sector indices. The NZSE30 will be calculated until 31 December 2003.
For more information, or copies of this framework, visit the NZSE website at www.nzse.co.nz.
