Positives For AMP and AXA from New Zealand Budget

Submitted by Craig Strzelecki on 18 May, 2007 - 19:57

The New Zealand Budget announced two additional incentives to encourage greater participation in the KiwiSaver Scheme - A matching credit by the Government of up to $20pw for contributions; and a proposed reduction in the corporate tax rate from 33% to 30% from 1 April 2008. KiwiSaver is expected to further accelerate double-digit growth in the NZ wealth management market over the next decade (ANZ, AMP, CBA and AXA biggest beneficiaries), and the proposed tax cuts hold positive implications for stocks like IAG, AXA, AMP, and SUN. The Budget changes will encourage far higher participation in KiwiSaver, as individuals can only capture the Government/employer 'handouts' if they remain in KiwiSaver and contribute the minimum 4% themselves. At the same time, the Budget changes will result in a more than doubling of the minimum contribution rate. A person opting to contribute at the 4% minimum will also receive up to $20pw (assuming a gross salary of $500pw) directly from the Government plus (eventually) a matching 4% employer contribution (3% of which is essentially funded by the Government). Prior to the Budget, the introduction of KiwiSaver was expected to underpin double-digit growth in the NZ wealth management market over the next decade. The proposed changes will further accelerate industry AUM growth, with participation expected to rise materially (from 25% by 2014 assumed previously) along with contribution rates. ANZ is the leader in NZ super, followed by AMP, CBA and AXA. Moreover, six investment firms (ASB, AMP, ING, Mercer, AXA and Tower) were recently appointed as default providers for the KiwiSaver Scheme and stand to win the lion's share of flows given likely employee apathy towards investment manager selection. The reduction in the corporate tax rate also holds positive implications for IAG (~12% of 2007(E) NPBT is NZ), AXA and AMP (~8.9% and 6.4% of after-tax business profits respectively), and SUN (~3% of NPBT on a pro forma basis). The NZ tax cuts are much more relevant to the banks than KiwiSaver. With the banks having between 10–24% of profit sourced from NZ and wealth management a small portion of this, the 3% reduction in the corporate tax rate is much more meaningful for the banks in the short term than the KiwiSaver changes. This will add 0.5–1.0% to bank earnings, spread over FY08 and FY09, with ANZ benefiting the most and NAB and CBA the least. Although CBA should benefit most from the KiwiSaver changes, the NZ wealth management business currently generates a little over 1% of group earnings.

AXA Asia Pacific Holdings Limited is listed on the Australian Stock Exchange (ASX) under stock code AXA. You can view their investor website here. AXA Asia Pacific Holdings is part of the Global AXA Group, one of the world's foremost investment and insurance companies. The company's principal activities are: Provider of insurance, superannuation and savings products and services in Australia, New Zealand and Hong Kong. AXA was listed on the ASX on 1 October, 1996. AMP Limited is listed on the Australian Stock Exchange (ASX) under stock code AMP. You can view their investor website here. AMP was listed on the ASX on 15 June, 1998. The company is a provider of life insurance, superannuation, pensions and other financial services in Australia and New Zealand. Peter Edward Mason is the Chairman for AMP and Andrew Max Mohl is the CEO. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade AMP & AXA. Check your charts and good luck with your share trading!

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