Inflation and tax rates down, FMA warns investors

Inflation continues to ease, interest rates are coming down, and the FMA issues a warning on retail trading.

On this page

Personal tax cuts are now in effect

Personal tax cuts introduced by the current National government are effective from the 31st of July.

The cuts apply to personal income which includes NZ Superannuation and other benefits that are paid pre-tax (main benefits such as Jobseeker and Supported Living benefits will be unaffected).

There is a tax calculator on the 2024 Budget website that you can use to estimate the difference in after-tax income for your household.

FMA issues warning to retail investor

A retail investor on the Sharesies investment platform has been warned by the Financial Markets Authority (FMA) that his trading activity likely breached the Financial Markets Conduct Act (FMCA).

The investor was selling shares with his partners account, then buying them back with his own account.

Buying and selling in this manner (known as a wash sale, a type of trade-based manipulation) can be a breach of section 265 of the FMCA. Wash sales generally have the goal of increasing the trading volume of a security to make it appear more actively traded than it normally would be, potentially increasing the share price.

In New Zealand, where trading volume for stocks outside of the 50 largest listed companies is often very low, a few small trades in quick succession can have a large impact on perceived trading volume and prices.

Market manipulation in New Zealand

Charges for market manipulation in New Zealand are uncommon. There have been a handful of cases bought by the FMA in the last few years – Wei Zhong was charged over trading of Oceania Natural shares between 2016 and 2017 and fined $1.33M (he was also the CEO and Chair of the company), and a Milford Asset Management portfolio manager was fined $400,000 for market manipulation in 2017.

In the most recent case, where the FMA has so far only issued a warning, the suspicious trading activity was picked up by Sharesies and reported to NZ Rego, the New Zealand Stock Exchange’s regulatory entity. Similarly in the Oceania Natural case, trading was picked by the investors broker – ASB Securities – who noted the similarities in the account numbers of the clients placing orders and flagged to the regulator.

Lessons for investors

The rise of low-cost, digital-only share brokerages, such as Sharesies in New Zealand and large platforms such as Robinhood in the US have led to a significant growth in retail participation in financial markets – a good thing, in our view – but with that retail growth there has been a notable increase in investors being caught out, either through inadvertent breaches of market conduct rules, being caught up in meme-stock mania, or just making less than optimal financial decisions. 

Banks are dropping rates

We have seen two main banks move their internal test rates lower in the last few days – these are the rates that banks assess new lending at, and they’re higher than market rates, so they have a significant impact on access to credit. The moves have been small – around 0.2% – but notable for being the first moves down in over two years.

This comes at the same time as retail rates have started to come down slightly. One year rates are well under 7% now, nearly 0.5% down from where they were six months ago, and five year rates are under 6%.

Clients are currently focused squarely on shorter duration terms right now given the expectation for cuts later this year. The six month rate is still holding a premium – although still under seven percent in most cases – but with the potential for 0.25% or 0.5% of OCR cuts before the end of the year the one year rate may look significantly more attractive soon.

Share this Post: