Chris Lee & Partners Ltd

Taking Stock 28 August 2025

NZ shareholders in our big banks can relax.

The banks seem to have had three pieces of good news in recent days, perhaps explaining the recent lift in bank share prices.

The first good news is the apparent decision by the Reserve Bank of New Zealand to ease off its demand for higher bank capital (by 2028).

The second item is confirmation that the parliamentary select committee investigation into banking practices has reached a sane conclusion that in effect means banks will continue to operate as they choose.

The third item is somewhat less obvious but relates to a British High Court decision not to enforce penalties for banking errors, at the level spelt out by idiotic law.

It was during the era of Adrian Orr (RB CEO) and Robertson (Minister of Finance) that banks were instructed to increase capital from 10% to 18%, incrementally by 2028.

This directive had several purposes.

Robertson wanted to introduce a deposit guarantee for retail investors. It made sense to force banks to hold more capital to reduce the likelihood of a bank collapse, and thus any call on the guarantee.

Once an unhappy Westpac bank executive, Orr had little sympathy for Australian banks and as long as two decades ago was being described in the most vulgar terms by Australian bank executives. Orr knew the pathway to their nostrils.

He wanted the banks to hold much more capital, in fear of the Australians behaving like ockers in the event of a banking crisis.

The result of much more capital to support loan books could have been a significant dilution for shareholders, an inconvenient new commitment forced on Australian banks, or a shrinkage in lending, or all three.

The latter would inevitably have led to higher margins. Less supply (restricted lending) would force good borrowers to pay more interest. Banks do not like shrinking. Growth is their natural setting.

Orr has now gone, as has Robertson.

The Aussie banks have loud advocates, John Key having been an ANZ chairman (in NZ), and Therese Walsh being the chair of ASB Bank. Key of course has wisely retired. He never was an appropriate chairman. In my view, neither is Walsh.

Both Key and Walsh had chaired Air New Zealand when our current Prime Minister, Christoper Luxon, had been CEO of Air NZ. At very least, they both live in Luxon’s circle. Indeed, the capital city believes Walsh is being lined up as the next Governor General, a post that thankfully might lead to a new ASB chair.

Recently Luxon confirmed he talks to the Reserve Bank about his preferences, in RB policy, without, of course, interfering with the independence of the RB. (He is not Trump.)

My guess is that one way or the other, the Australian banks will have had their views noticed by Luxon and the RB.

Ironically, the banks are being allowed to take on a riskier profile (less capital) at a time when the global market is fearing bank instability, perhaps initiated by the growing likelihood of major failures in the new private credit sector.

To me the private credit sector looks similar to previous non-bank lenders, evoking memories of the 2006-2010 collapses, our mortgage trust and finance companies being an example of what happens when liquidity is threatened, when supply of new money falls, and when a high percentage of loans are to related parties.

The Financial Times informed us this week that 70% (approx.) of all private credit loans are to related parties, that is private equity funds that are struggling and need sympathetic lenders.

I ponder whether 2025-26-27 might be a time when we would be happier if our banks were over-capitalised.

Whatever, the indication is that banks will not be forced to arrange more capital and thus will be more willing to take on risk in search of growth, margins, profits, dividends and, pardon me, executive bonuses.

The select committee’s conclusion seems to acknowledge that banks must be free to perform their own risk analysis, set their own margins, and to ignore the lobbyists wanting banks to be more regulated.

Unless we as a nation wanted centralised planning and the form of socialism (communism?) visible in places like China and Russia, it always seemed probable that no wise group of politicians would pretend to dictate bank lending policies.

Key and Walsh will no doubt have privately urged this sort of conclusion. I agree with them. Banks have a social licence that is important, but banks are owned by shareholders who display no enthusiasm for socialism.

If banks want to lend to medicinal marijuana processors or to brothels, or to any high-risk proposition, the decision should be theirs, providing the loan is legal.

The third potential victory for the bank is somewhat more obscure but it centres on the unresolved penalties banks in NZ must pay when they made disclosure errors between 2014 and 2019.

During that period, Key’s government introduced poorly designed law aimed at backstreet lenders. Because of the poor research and law design, the major banks, which are not rip-off merchants, were subject to the new laws aiming to curb backstreet lending.

The penalty for disclosure omissions or errors was identified by the poor law as being a compulsory refund of all fees and interest collected right up to the day the error or omission was identified and corrected.

The banks were careless, often making trivial breaches, culminating in a theoretical liability for the ANZ and ASB of a large figure, perhaps a few hundred million.

Whether it was Key or Walsh (or neither) who brought attention to this unreasonably high penalty is not relevant. The banks grossly exaggerated the sum, seeking to create outrage and panic over the phony figures they created.

The outcome of the discovery of the unreasonable penalty was that Luxon’s government sought to change the law retrospectively, cutting in front of a brewing legal case aimed at claiming under the law a large sum for affected investors.

A litigation funder would no doubt have settled for a figure much lower than the law prescribed but the retrospectivity of Luxon’s amended law seemed an even cheaper outcome for the banks.

The issue is still unresolved but in Britain this month an equally silly law relating to bank disclosure was tested in the Supreme Court. That court reversed a decision by the Court of Appeal, which had confirmed the ludicrous penalties.

The background was a sensible law requiring banks to disclose commission they paid to loan brokers, but an absurd penalty for banks who broke that law.

In the UK, banks provide discounted loan finance to car dealers, which in turn lend the money at a much higher rate to people who borrow to buy a car. They have done this for many years.

The banks did not disclose this. They decided the “discount” rate was not the same as a “secret commission”. The courts disagreed.

Once the problem was identified the regulators assessed the banks were to be fined the amount they had not disclosed over the long period of non-compliance – a rather eyewatering sum of 44 billion pounds, easily enough to damage the stability of Britain’s banks.

Well, in August the Supreme Court confirmed that the banks had an obligation to disclose this “secret commission” but ruled the prescribed penalty was absurd, and the penalties inappropriate.

Will this decision be relevant to the ANZ and ASB in NZ, as they attempt to escape from the prescribed penalty for their careless disclosure issues here?

I continue to advocate that the retrospective law be discussed in our own court. I accept a settlement might end the matter and leave the law to be changed without what seems an undemocratic outcome for those who contest the extant law.

The banks have had a good month in August. It would be even better if their political clout can result in escaping the prescribed costs of their disclosure errors.

The share price rises of all the listed banks reflects this. (It can hardly reflect better economic conditions.)

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WHEN Trump recently named various cities in the USA as “hell holes” he undertook to send in the national guard and various state law enforcers, choosing the states to supply from places that were not hell holes.

One of those he tapped for support was Ohio, presumably not a hell hole.

Well: some may beg to differ.

They may either have read the non-fiction book “Dark Money” or they may have watched a riveting documentary identifying the grim mix of US state government corruption.

Many of us who have observed US politics would not be swept away by the book or the documentary but, as Trump sets the US agenda, it might be worth it to record what happened in Ohio.

This racketeering centres on Ohio’s Speaker of the House, a house dominated by Republicans, with a controversial character, Larry Householder, being that speaker. The speaker has the power almost of a king.

The scandal was enabled by an Ohio state bill which allowed people or corporates to retain anonymity when they donated via an established 501(c)(4) trust to any political campaign.

In effect this trust blocked any transparency as to who was donating to politicians. The trust could do what it liked with the money.

The Ohio nuclear energy provider First Energy had been on the verge of bankruptcy when Larry Householder announced a state subsidy of $1.3 billion - of tax-payer money - to First Energy.

What he did not announce was that First Energy contemporaneously donated $61 million through this 501 device, the money in the trust controlled by Householder who, as Speaker of the House, controlled legislation.

The $61 million of First Energy money was used to support Republican electioneering, spread amongst 21 candidates to promote themselves and denigrate the rival candidates.

As an aside, in the US, 91% of all election campaigns are won by the individual with the largest advertising budget.

Armed with this money, the Republican candidates dominated, pledging their support for Householder in return for the cash in the 501 trust that Householder controlled.

Elected as Speaker, Householder then had support for his plan to allocate $1.3 billion to First Energy.

The link between the First Energy donations, Householder, and the ultimate huge sum given to First Energy, was proven in court thanks to the admirable work of a small but tireless team in the FBI.

Householder was tried and sentenced to 20 years in jail for racketeering.

He had been an energetic supporter of Trump and a large advertiser, supporting the Republicans to defeat Joe Biden, Trump winning the state by a full 10% margin.

First Energy was fined $3,860,000 as a civil penalty, and a criminal fine of $230 million, probably among the largest criminal fines imposed on a corporate in US history.

The grubby saga had uncovered dreadful state law (anonymity for political donors), appalling abuse of authority, widespread corruption, and American corporate chicanery.

The documentary and book are both available for those who find this story hard to believe.  I watched the documentary on a Singapore Airlines long-haul flight.

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THE Fonterra chairman Peter McBride, CEO Miles Hurrell, and former director Leonie Guiney should be receiving a sackful of Xmas cards this year.

The successful sale, at an unexpectedly large price ($4.2 billion), of Fonterra’s consumer brands, will result in large sums being returned to Fonterra suppliers.

There are around 10,000 Fonterra suppliers.

If half of the $3.2 billion was shared based on the quantum of milk supplied by 10,000 suppliers, the average receipt would be $160,000, a sum that in most cases ought to be applied to debt, or to improved infrastructure. It is likely the other half of the proceeds will go to Fonterra shareholders who are not milk suppliers. I have not discovered details of the split.

Henceforth the Fonterra supplier shareholders would receive lower dividends, as a result of the sale of the branded products to the new French owner.

McBride, Hurrell and, earlier, Guiney have made an impressive difference to Fonterra, a co-operative which had regularly made appalling decisions, often with ego-based decision making, often lacking competent risk analysis.

Fonterra now reverts to its true base, that of a co-operative whose task is to collect milk, treat it with high processing standards, and supply it to others around the world in the form they choose.

Guiney is the director who stood tall a decade or so ago and fought the chairman and directors whose grandiose plan threatened to sink Fonterra.

Many will recall the unwise purchases, the excessive use of debt, the quite ridiculous executive salaries, and the lack of robust risk analysis. Massive capital losses resulted.

Guiney was isolated by many directors, kicked off the board, and even sued for imagined offences. She is a dairy farmer, not one of those who achieve directorship through playing the diversity card.

When fired she fought back, won the farmer vote, and was placed in the uncomfortable position of being on a board that had fired her.

She kept up her campaign for better governance. She won.

Now retired as a director, she would have felt comforted when McBride, nothing like previous chairmen, implemented sane governance and with the help of a competent CEO went about converting Fonterra back to its deserved status as one of our most important organisations focussed on areas where NZ has a comparative advantage.

Guiney and her talented, energetic husband Kieran, have been active in training and development, made regular important contributions to their community as well as to the dairy industry, and have four fine kids, at least two of whom will be dairy farmers.

No New Zealander should forget the importance of Fonterra.

It may soon return to being New Zealand’s most admired company.

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Travel

Our advisers will be in the following locations on the dates below. 

11 September – Ellerslie – Edward Lee

12 September – Albany – Edward Lee

24 September – Lower Hutt – Fraser Hunter

3 October – Tauranga – Johnny Lee

7 October – Palmerston North – David Colman

8 October – Christchurch – Johnny Lee

Please contact us if you wish to make an appointment.

Chris Lee & Partners Limited

Taking Stock 21 August 2025

AS I return from seven weeks in Europe, I reflect on some obvious market changes evident in Europe and in New Zealand that will affect investors in coming years.

1. The property market is changing across all sectors.

2. The tourism sector is slowly adapting to a very different environment. Will the world be watching fewer but richer tourists?

3. Economic growth is being sparked in narrow segments largely funded by government debt not by market forces. Defence and major infrastructure repair will benefit a narrow group.

4. Ever more debt remains the strategy of politicians.

5. The politicisation of the media is being exposed. Where goes junk journalism?

The property sector is one that preoccupies fund managers and investors.

Change will challenge many of the old assumptions as capital prices of property, and rentals in many sectors, adapt to a new era of price sensitivity.

Characterising this new era will be a change in the balance between supply and demand, especially in retail, office and most obviously in the non-prime area.

The NZ housing markets in Auckland and Wellington provide evidence, Auckland prices down 20% from the ridiculous Ardern/Robertson highs, Wellington prices down 30%. Ouch!

Developers cannot build modern dwellings at prices that buyers can afford.

The housing market change is in your face. If you want to sell, meet the market; forget the silliness, funded by all the free money of 2021–23, when we had quite dreadful financial leadership.

The inevitable false solution of yet another round of cheap money will not restore values to 2022–23 levels. Cheap money will NOT last.

Inner city rentals should, indeed must, fall as occupancy levels fall. Capital values will follow. As university student levels fall worldwide, the rents funded by taxpayers will need to meet the true level of demand. In many countries the move to universities from college is stalled.

What Malta refers to as “Mickey Mouse” degrees may be behind the UK statistic of 630,000 youngsters with a recent university degree being unemployed.

The gap between future earnings of a university graduate and an apprenticeship graduate is narrowing.

University students make up a big chunk of cheap accommodation rental demand.

Globally, larger numbers of young people are residing at the same site as the Bank of Mum & Dad. 

The numbers who never marry or have a family reflects deep-seated changes, as does the rising number of homosexual and transgender relationships.

The large suburban house, too big for those with no children, and too big for elderly couples, inevitably will be worth less and may increasingly be converted to multi-storeyed units, with a focus on security rather than on family living.

Everywhere in Europe, this trend is evident.

There is a rising trend for the adult offspring to remain at home with their parents in Britain and elsewhere.

In Europe, the average age at which offspring leave Momma’s nest is 30, Italy marginally higher (31) than Malta (28), and Portugal/Spain (29). In NZ the average age is nearer 24.

In times of full employment and generous wages, the average age to be self-sufficient was nearer 20.

Commercial property is also facing new trends. 

I have my doubts about work-from-home or the scarcely evident four-day week, but there is ample evidence of diminishing demand for low-paid clerical & administrative staff, and thus demand for office space.

Artificial intelligence and the next iteration of robots is already changing the type of commercial property needed, and the need for five-star locations.

My guess is that the public sector will shrink, also increasing the attrition rate, when renewal rights become voluntary.

I would bet that the old ratchet clause will soon be as evident as the “debutantes’ ball” which was common in the era when my sisters “came out”.

Ratchet clauses always were a fraud. Buildings deteriorate; earthquakes hasten that problem; technology changes; favoured locations change; issues like transport, car parking, and appropriate infrastructure always should be changing demand. Rents must fall in many locations.

Think of Auckland and its waterfront skyscrapers - only a few decades ago the hot spots were Shortland Street and the middle parts of Queen Street.

Logic suggests short-term interest rate falls might have a mild effect on property prices, but the real driver will be demand, specifically price-sensitive demand.

Across retail, office (but not industrial) there is ample evidence that demand is soft.

Those who invested in unlisted property syndicates in NZ will not need me to point out that the vast majority of syndicates are struggling to deliver income and are under pressure from their banks.

It is to the credit of Ian Cassels and The Wellington Company that they plan to repurchase syndicated properties in 2026, with no capital losses for investors.

In summary, the old saying that bricks and mortar are of timeless value is, and always was, a marketing slogan, exploited by phonies.

Land, not deteriorating building products and price-sensitive tenants, is the key factor, and will be.

The tourism sector has blossomed in the past year with large numbers of already wealthy people having benefitted from government largesse, money-printing and more sovereign debt, used by politicians to retain power. That money landed in the laps of the well-off.

Travel numbers rose. The search now is for the high value tourist, price insensitive, willing to tolerate the new, quite revolting invoicing practice of tagging on 15-20% gratuities, thankfully not common in Germany or Malta.

Malta expects its tourism numbers to grow from 3.2 million in 2025 to 4.0 million in 2026. Its ability to absorb seven tourists for every resident is extraordinary, almost unique.

The Maltese Tourism Authorities have discovered that wealthy tourists expect safety, lawfulness, great weather, a clean sea, a universal language, high food standards and affordable prices.

Sadly for most countries, including Malta, they also expect infrastructure to be built before the tourism numbers soar.

The locals expect intelligent planning of developments and control of the numbers of incoming tourists to avoid congestion, traffic incidents, and pressure on key services like electricity and wastewater.

In Malta’s case they staff their hotels and restaurants with Nepalese people, as well as many from the Philippines, India, Bangladesh and Eastern Europe, most of whom are wonderfully helpful.

The unbelievably active construction sector in Malta is largely manned by Indian, North African and Filipino workers.

One of the two developer giants in Malta, Portelli, is now building hundreds of 40 square metre apartments for Euro 135,000 to accommodate all the new immigrants. (A normal dwelling is 100 square metres.)

Malta’s experience in rising visitor numbers is rare and has led to its economy being the fastest growing in Europe, but many other European countries which can supply lawfulness, good weather etc, are also growing their tourism numbers. Some, like Portugal and Spain, are not happy with excessive numbers.

Sadly, all of the fast-growth countries make the same mistake our own lightweight leader made between 2008-2017, chasing numbers and revenue before building the infrastructure (roads, ferries, airport terminals etc).

Nothing in tourism-based economies is more certain than ugly failures in planning, caused by short-termism.

Perhaps the falling number of people with no price sensitivity will cause numbers to slow, enabling the infrastructural deficit to catch up.

My guess is that many countries, especially places like faraway New Zealand, will soon find that deep-pocketed tourists will fall in number and demand much better facilities than, for example, a fragile inter-island ferry service.

The growth so desperately sought by over-indebted countries (like USA, UK) and poorly-led places (like NZ, Germany in the 2021-23 period) is likely to be elusive, as countries inevitably are restricted by the cost of debt.

Growth, when dependent on defence spending by governments, and borrowings to improve roads, is not necessarily met by improvement in nett household spending, let alone savings.

That sounds like one-way traffic!

I would be cautious about investing in airlines, hotels or adventure companies (indeed not just cautious, pretty darned reluctant!).

I have returned to NZ with no clear picture of how the western world can stop the flow of nett savers into nett borrowers, outside a tiny percentage of highly successful people.

While countries like Britain, the USA, and many others continue to focus on short-term fixes, often at the cost of pollution and high standards in education and health, and in diminishing law enforcement, the conundrum for long-term investors will baffle most people.

I guess if there was one constant message it was that food and water will not suffer from falling demand, nor will energy, in a hotter/colder world, where data centres gobble up increasing electricity.

NZ has many natural advantages, the most obvious being our ability to collect rainwater and our ample under-utilised, fertile soils.

Will our education sector evolve so that the next generations develop skills in areas where we have a comparative advantage? Will apprenticeships and technical education gradually reduce the MM degrees?

Will we discover leaders who can find ways to incentivise people to help improve our productivity?

My concluding thought on my return is that we still should bow when we come across true wealth-generators and aspire to invest with them so we can cater for the growing numbers of younger people who can never be self-sufficient and need our subsidies.

More than 20% of young people in Europe are marooned, without a job, many lumbered with student debt. Is this clever?

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THE New Zealand review of our media, focussed on RNZ, has been replicated in Britain, which is disillusioned by the poor standards of journalism and by the politicisation of Crown-funded radio.

The finding in NZ was similar to the reviewer’s conclusions in Britain.  That is, that the ideology of the supervisors of the reporters alienates listeners/readers, who have little interest in the views of journalists or editors. Listeners, viewers and readers want information, not opinion.

The NZ reviewer of RNZ noted that its audience is largely mature, experienced and knowledgeable, mostly in the 50-70 year ago group. Yet they are fed often juvenile content by editors and reporters, suited to school leavers rather than to seasoned people.

Years ago RNZ had an excellent journalist, Geoff Robinson, who regularly interviewed me.  He was respectful, careful, adequately informed and was intent on drawing information from me. In his era, Morning Report flourished. I always accepted his calls.

Later, I endured silly, poorly-informed journalists, many of whom seemed intent on advancing their opinions rather than eliciting information from an industry protagonist.  The television interviewers were the worst.

To his credit, the Auckland interviewer Mike Hoskings has identified an audience, fed it what it wants, and created a following that draws an older, if perhaps a one-dimensional audience. 

Leighton Smith was also proficient at creating a following.

They have been exceptions; very rare exceptions.

The BBC is now being castigated for similarly-biased stuff.

Of course, in Britain, you read your newspaper based on its content; sometimes adult, others childish. You know the popular stuff will feed you hyperbole and dreadful columns written by columnists who tell us what makes them belch, what deodorant they wear, and other such teenage content.

Conversely, in Malta, the excellent 90-year-old Times of Malta provides opinion by offering column space to people of achievement, former prime ministers, judges, business leaders, council officials, senior public servants, environmental heads and religious leaders. Reporters simply report.

You never read about reporters who have broken marriages, difficulties in managing debt, dysfunctional relations with neighbours etc, yet are allowed to thrust their opinions on readers.

Does this explain why Malta’s newspapers, with very little advertising revenue, an online subscription available, largely used by ex-pats scattered around the world, and a daily cost of NZ $4, can produce nett profits and a stable audience?

The reviewer of RNZ replicated what British people believe about the BBC.  That is, that the political opinions of people with careers in media reporting should never influence content, least of all in countries where the audience is not offered a range of media outlets from which to choose. Stuff, the NZ Herald, TVNZ and RNZ and its like will not survive by thrusting on audiences opinion that is unvalidated by accomplishment and untested by accountability.

Will the NZ reviews bring about change?

Or will audience losses determine the fate of our offerings?

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Travel

Our advisers will be in the following locations on the dates below. 

21 August – Wairarapa – Fraser Hunter

22 August – Lower Hutt – David Colman

28 August – Christchurch – Fraser Hunter

11 September – Ellerslie – Edward Lee

12 September – Albany – Edward Lee

Please contact us if you wish to make an appointment.

Chris Lee

Chris Lee & Partners Limited

Taking Stock 14 August 2025

THE hope was that four weeks in Europe with time to meet people, listen, read and discuss with the other three directors of our company would provide some conclusions to the central question - How do we steer clients towards decent returns on their investments that offset the risks of inflation, precariously balanced major economies and general tumult?

If countries cannot afford debt except at minimal servicing cost, yet run deficits and plan bigger deficits (to fund defence and infrastructure), then the politicians will try to crush interest rates - Trump.

Or they will borrow even more to service debt - Trump.

If the cost of money is artificially low, inflation would surge, and the prices of assets would surge. The result would be even more money and assets settling in the hands of the top 10%.

Dare I say it, but at some point, one of two outcomes would follow:

Democracy would allow the other 90% to set the new rules, perhaps a blend of socialism and communism.

The alternative outcome would be signalled by the rising sales of pitchforks.

My sons James, Edward and Johnny, and their families settled on the island of Gozo to ponder a way to deal with all of this, in amongst a rare full family holiday in the sun.

Returns on predictable assets, like bank deposits and bonds, will be somewhere south of 4.5% in NZ, and in most wealthy countries.

Measured honestly, inflation would be a similar figure.

Britain, for example, has huge debt, is running a 50-billion-pound deficit, already has uncomfortably high tax rates, and has a government (Labour) that is being slaughtered, according to the polls.

It has rising unemployment, inflation around 4%, debt rates around 4%, and social problems that seem unsolvable.

In a country with rapidly rising crime rates its police successfully solve just 5% of all crimes reported, down on last year’s figure of 7.5%.

The Police Commissioner, desperate for staff, says that in some weeks not a single applicant registers to join the police force.

Illegal immigration is at record levels.

Wages have stalled.

Like much of Europe, it is now reversing its budgets to decarbonise.

Yet currently its share market is hitting new highs every month, despite its retailers, including supermarkets, being squeezed.

Its publicly listed supermarket, Morrisons, reported a loss for the past 12 months of 500 million pounds.

Yet BP is on the rise, selling oil at ever greater margins, its last quarter profits in the billions.

Investment returns in listed shares have been high.

The movement to high-risk private equity and private credit so far is reporting high returns.

My conclusion: investors are accepting ever more risk to achieve what they regard as acceptable returns. Is this the case everywhere?

It is the case in the US, where just a handful of companies make up the bulk of the value of the top 500 companies, grossly rewarding those who bought the index, despite most of the 500 companies being moribund.

How do global investors achieve satisfactory returns?

They accept far more risk, buying shares in listed companies priced at record multiples of earnings.

Investors must assume that in these over-indebted times, when unsolved problems are simply stored up in the attic, the star companies will enjoy perpetually rising sales and margins.

What does this signal to NZ investors?

Here we have low interest rates, justified by a method of measuring inflation roughly akin to assessing the value of a mystery Christmas gift by the size of the parcel.

If real cost increases in NZ households are less than 6%, then the Presidents of North Korea and the USA really do average six holes-in-one in each of their golf rounds.

But let’s be kind and accept the figures provided in NZ: inflation 2.7%; unemployment 5.2%; crime rates falling; GDP growing at 1.0%; wages growing; house prices stalling; rents falling; school attendance rising.

In this environment how does a wealthy retired person, with savings of $500,000 (top 10% of all retired people), achieve a nett return exceeding the true rise in living costs?

In the past 15 years there have been opportunities to buy subordinated bank securities yielding around 7%, there have been times when property trusts yielded 6% nett, the power generators and the likes of Spark and Chorus have had attractive dividend yields, and there have been many examples of local and foreign listed companies that have grown at attractive rates.

Yet currently bank securities are expensive and low-yielding, and the reliable collectors of income, like power companies, are yielding lower numbers.

Our trip to Malta has been helpful if only in enabling us to observe the as yet unsolved problems facing larger economies.

My conclusion is that an investor whose portfolio is resilient and yields 4% after tax is likely to outperform pension funds, on a measurement of return measured against risk.

We think we have a strategy for the various groups of investors we help.

However, unsolvable problems face many countries, including fiscal deficits to fund defence, infrastructure and embedded social spending, not to mention the need to repair health and education systems.

Clients are welcome to discuss what we have learned.

No investor should overlook the relationship between risk and return. Older investors should never underestimate the value of liquidity.

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WHEN the directors of the aspirational gold-mining company Santana Minerals elected to accept an offer of a large sum of capital last week, by their action those directors were signalling at least one of three things.

The most likely motive was that without any effort Santana could raise all the money it might need to raise, possibly ever.

If this were the logic, the board was being slothful.

If the consenting process is overseen by adults, the Santana share price would soon enable a placement at a much less dilutive formula than applies now.

An alternative signal was that the offeror of the capital, two large global institutions, greatly enhanced the strength of the share registry, providing some future access to large bundles of capital.

A third possible interpretation is that Santana’s board is insuring against a long, slow, expensive consenting process, muddled by the potential delays caused by any science-based opposition.

I guess that a fourth explanation might be that Santana’s directors believe the yields and quantum of gold will be much higher than they can forecast, so the dilution of existing shareholders will be offset by inevitably higher dividend pools.

Perhaps if that were the explanation, Santana would be showcasing the mindset of most Australian discoverers of minerals – that is that “leakage” will be unimportant if shareholders are happy.

Personally, I would have declined the global money (at A$0.58 a share) and patiently observed the consenting process.

If that process is conducted, and is not challenged by real obstacles, the Santana share price might soon have enriched an issue much less dilutive than the issue concluding now.

If it takes an issue of 100 million shares to raise $60 million at current prices, it might take just 50 million shares if the share price doubles, following progress with consent.

Santana’s explanation and behaviour could have been clearer.

Just days earlier, a mining conference in Australia was told Santana was fully funded and that interested buyers should visit the secondary market.

The sun sets a few times, and then we are told of a documented placement, an act that needs a better explanation.

As a minor shareholder in Santana Minerals, I expected a detailed summary of the global institutional interest, if not their names.

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THE rising cost of government borrowings is in part caused by the cheap Covid interest rates being gradually repaid, new replacement debt at higher rates.

Long-term debt in many countries is being replaced by short-term debt, in the somewhat forlorn hope that the world can again resort to free money.

More money spent on servicing debt either means new or higher taxes, or less spending.

The United Kingdom is in fierce debate, the right wing calling for more targeted spending, the far-left wing calling for confiscation of wealth by taxing assets that do not produce income.

The debate is vitriolic, if nothing else wonderful click-bait for mainstream media.

So it was interesting to collect some data that might counter the most hysterical voices, such as those we hear in NZ.

In the UK last year, the following data points were verified and published: -

The top 1% of earners paid 20.6% of all income tax received.

The top 5% paid 47.1%

The top 10% paid 58.6%

The top 25% paid 75.6%

The top 50% paid 90.1%

The bottom 50% paid 9.9%

The bottom 25% paid 2.4%

The bottom 10% paid 0.4%

The bottom 5% paid 0.1%.

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Travel

Our advisors will be in the following locations on the dates below.

20 August – New Plymouth – David Colman

21 August – Wairarapa – Fraser Hunter

22 August – Lower Hutt – David Colman

28 August – Christchurch – Fraser Hunter

11 September – Ellerslie – Edward Lee

12 September – Albany – Edward Lee

Please contact us if you wish to make an appointment.

Chris Lee

Chris Lee & Partners Limited

Taking Stock 7 August 2025

Fraser Hunter writes:

AUGUST is when the NZ market does its heavy lifting. More than half the index will report in the next fortnight, with most of the companies reporting full-year numbers. Due to the size and make-up of the NZ market, it is probable that a handful of results will have an outsized impact on portfolio performance through the rest of the year.

After a weak first quarter, the NZ market enters the period on firmer ground and has bounced approx +8% over the past three months. Mid-caps, dividend payers and the property sector have led the charge, reflecting a clear shift in how investors are responding to cheaper money.

New Zealand’s macro picture is improving but still fragile. Falling inflation has allowed the Reserve Bank to cut the OCR to 3.25% over six moves. Long-term rates are trending lower, although progress has been gradual. The NZD has slipped to around US$0.59c, helping exporters but lifting costs for importers. The housing market remains subdued, and household sentiment is yet to recover.

As results roll in, our focus remains on a few key themes: whether dividends are holding, whether cost control has protected margins, whether management commentary supports a recovery narrative, and are boards effectively allocating capital in a lower-rate environment.

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GLOBAL markets have continued to climb, but the rally is increasingly dependent on a small number of stocks and stretched valuations.

The latest round of US company results was highly positive, with more than 80% of companies beating earnings forecasts and profit growth tracking around +10% year-on-year. Most of the upside has come from large-cap tech and communications names, while sectors like energy and industrials have lagged.

Speculative signals are back, with low short interest, increased use of leverage and the meme trade resurfacing.

All of this is happening while core inflation remains sticky and policy uncertainty climbs ahead of the US election. The ongoing tariffs implementation continues to add risk and uncertainty to global supply chains. With the S&P 500 trading above 22x forward earnings, the most expensive level since 2021, sentiment looks stretched and increasingly exposed to surprises.

In Australia, the outlook heading into a large bout of results is more mixed. Softer iron ore and coal prices have weighed on the miners, while bank earnings are being squeezed by margin pressure. However, travel, hospitality and consumer names remain resilient, and bad debt charges are still benign. 

The ASX 200 is trading modestly above its historical average, suggesting some optimism is already priced in. Further upside will need to come from earnings, not re-rating.

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WHEN looking at the NZ market, we don’t have the breadth of companies covering the range of sectors that global markets, or even Australia, has so it is easier to break the market into buckets or styles. This can make it easier to identify and compare companies that have the traits you are seeking (growth/income/low volatility etc), while also providing a blueprint on how a NZ portfolio could be diversified. 

Defensive income – gentailers (Contact, Genesis, Mercury, Meridian)

For income-focused investors, the gentailers remain core to NZ equity portfolios. Their upcoming results will matter less for the year past, but more for what lies ahead.

Contact, having acquired Manawa’s hydro assets, is expected to outline its expanded generation pipeline and confirm the timeline for retiring its gas assets.

Mercury begins FY26 with full lakes and several wind and geothermal projects consented, so initial guidance should be materially stronger than last year’s drought-affected outlook.

Meridian’s headline numbers are likely to be soft, but focus will shift to progress on new developments and its dividend policy now tied to free cash flow.

Genesis still offers the sector’s highest yield, though the timing of its coal exit remains a key variable. The recently announced deal with the other major generators to keep a portion of Huntly available for another decade provides security of supply while it transitions toward biomass.

At the sector level, wholesale prices remain high, domestic gas is scarce and demand is expected to rise as electrification advances. These conditions favour low-cost, renewable generators. Political and regulatory risks persist but remain background noise and are more likely to be raised externally rather than in company presentations. For investors, the focus remains pretty much on four topics: full lakes, new capacity, security of supply and dividends that hold up in what could become a volatile policy environment.

Defensive income – telcos (Spark and Chorus)

Spark’s share price has recovered in recent months, reflecting growing optimism ahead of its result. The company still offers a forecast gross yield near 9%, but this remains contingent on delivering cost savings and offsetting softness in IT services. With economic conditions still subdued, the focus remains on dividend sustainability and the potential for further capital returns from tower-sale proceeds.

Chorus enters the season in a more stable position. Revenues are regulated, capex is tapering, and free cash flow is expected to keep improving. Dividend growth remains the central expectation, along with the eventual return of imputation credits once historical tax losses expire. Any new fibre investment could delay that timing.

Other Defensives - Channel, Chorus, Vector, Port of Tauranga, Auckland Airport

Among infrastructure and logistics names, Channel Infrastructure has shown steady cash flow and throughput. The upcoming capital structure review will guide expectations for potential special dividends, while government-mandated fuel stock levels could add to future storage demand.

Vector continues to deliver stable earnings from its Auckland electricity network, but rising interest costs and heavy infrastructure investment are constraining free cash. Dividend growth is expected to remain modest unless funding costs improve.

Port of Tauranga maintains a consistent yield, with export log and container volumes stabilising. Management updates on trade flows and the timing of berth expansion will shape near-term expectations.

Auckland Airport has reinstated its dividend, though ongoing terminal redevelopment is likely to keep payouts conservative. Investors will be looking for signs that growth plans can progress without increasing balance sheet risk.

Together, these companies form the backbone of most income-focused portfolios. With deposit rates easing and market volatility persisting, investors are likely to reward businesses that continue to deliver reliable, fully covered dividends through a still uneven recovery.

Growth Companies - Freightways, Skellerup, EBOS, a2, Summerset, NZX

Growth opportunities are quite scarce in the NZ market, which is dominated by the previously mentioned defensive names. Also missing from the August results are some of the first-choice investments for growth investors - F&P Healthcare, Mainfreight and Infratil, which have March year ends.

Of the rest, the growth names are divided into two groups: those delivering steady results with clean balance sheets, and those still needing to prove they can execute.

Freightways and Skellerup sit in the first camp. Both have managed to get through the slowdown with margins intact and low gearing. Investors will look for updates on volume recovery, incremental growth through pricing or distribution, and any small bolt-on activity. Expectations are already high, so results will need to show clear momentum to justify further upside.

EBOS results still reflect the loss of Chemist Warehouse, but the look through to the remaining business should be positive. The wholesale business is still running well and the focus is now on new partnerships and margin improvement to sustain mid-single-digit EBITDA growth.

A2 Milk is still highly dependent on China demand. Market share recovery has helped, but questions remain over regulatory access and supply chain stability. Investors will be watching for progress in cross-border channels and early guidance for FY26.

Summerset continues to grow across all key metrics and sales figures to date have held up well. The key markers will be inventory control, gearing, and whether its build programme can continue without falling into the same troubles as the other operators. The sector as a whole continues to face scrutiny and political pressure, as well as battling a soggy property market.

NZX has continued to grow revenue across funds and data, but investors want to see stronger flow-through to earnings. With growth markets remaining competitive, the company will need to deliver higher margins from a lower capex base while continuing to scale. With NZ growth companies hard to come by, credible growth stories will be well-supported, potentially overvalued, but those who disappoint tend to struggle until progress returns. 

Cyclicals – Fletcher Building, Vulcan, Steel & Tube

After two challenging years, the cyclical parts of the market are starting to attract interest again. With rates falling and early signs of economic stabilisation, investors are revisiting names with potential for operating leverage as demand returns. Optimism is still cautious, and delivery will need to be visible.

Fletcher Building, Vulcan Steel and Steel & Tube are all positioned near the bottom of the construction cycle. Volumes remain subdued, but sentiment is shifting from how deep the downturn might be to how quickly activity could recover. Fletcher still carries the weight of past issues, so stability alone would be a positive step. Vulcan looks better placed, with solid execution and exposure to a more resilient Australian market. Steel & Tube has lifted margins and cash flow, but now needs to show it can sustain that improvement.

Other Cyclicals – SkyCity, Air NZ

SkyCity and Air New Zealand are still in a bit of a rebuild phase. SkyCity is working through regulatory fallout and may update the market on asset sales or capital plans. Air New Zealand remains constrained by engine maintenance delays and fuel costs, so guidance around capacity and bookings will carry weight. Neither have appealed as portfolio positions for quite some time and appear more speculative trades for those trying to pick the bottom. 

Primary Sector – Fonterra, Scales

Agriculture and primary sector expectations remain low, but some early signs of stabilisation are emerging. Most companies in the group are still operating under tight conditions, but confidence may be starting to rebuild.

Fonterra has been on the radar of many investors as the primary sector, as well as the regions, have outperformed other parts of the economy. Margins are expected to remain under pressure, with full-year earnings expected to soften, but a key focus will be on its proposed consumer asset sales, performance of the ingredients division and FY26 guidance. A small dividend increase is likely, but balance sheet strength and long-term positioning will carry more weight.

Scales appears well placed for a good result. A favourable growing period and stronger trading in both horticulture and global proteins put it in a far stronger position than this time last year. We’ll be watching closely for updates on export conditions, particularly in the US protein market.

Property Sector – Precinct, Vital, & Property For Industry

After a tough few years, the property sector is coming back into favour, helped by falling bond yields and renewed demand from income-seeking investors. The real estate index is up more than 10% year to date, narrowing yield spreads and lifting valuations closer to fair value. The upcoming results now need to justify that optimism, and how the management strategies adjust to lower borrowing costs and stabilising values will be of interest.

Precinct Properties has been one of the sector’s strongest performers. Investors will focus on leasing progress at Bowen Campus and Commercial Bay, along with funding plans for the next development phase. With asset revaluations largely complete and a new dividend policy in place, the key test is whether recurring earnings are keeping pace with expectations.

Property for Industry remains the most consistent of the group. Industrial demand is still firm, supported by CPI-linked rental growth, but rising interest and tax costs are limiting overall earnings momentum. Management commentary on tenant demand, development timing and capital deployment will help shape sentiment for the year ahead.

Vital Healthcare offers reliable inflation-linked income and long lease terms, but soft valuations in Australia and balance sheet constraints are keeping distribution growth flat. Progress on divestments, partnerships or gearing reduction would be well received.

Property valuations now reflect a more supportive rate backdrop, but fundamentals will need to follow. Consistent occupancy, disciplined capital spending and sustainable distributions will be needed to maintain investor confidence.

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ACROSS the market, repricing has already happened. Bond yields are lower, rate cuts are largely anticipated, and portfolios have rotated toward yield, defensives and early-cycle names.

Valuations are normalising and future value from here will likely be added by sound strategy and execution.

For most retail investors, the key themes heading into these results are pretty clear, with companies needing to deliver dependable earnings and dividends without overextension.

Growth investors are focused on execution. The broader market is seeking clarity on cost control, capital plans and whether recovery is beginning to take hold.

Lower rates have set the conditions for a recovery and this reporting season should hopefully identify a few companies ready to respond.

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Travel

Our advisors will be in the following locations on the dates below.  Please contact us if you wish to make an appointment:

20 August – New Plymouth – David Colman

21 August – Wairarapa – Fraser Hunter

22 August – Lower Hutt – David Colman

28 August – Christchurch – Fraser Hunter

Fraser Hunter

Chris Lee & Partners Limited