At the end of September, about 49% of the NZX was held by foreign investors, slightly down on June.
"It may be a little early to say foreigners are packing their bags but after backing out of Australian buying, international interest in New Zealand equities has reduced. Crucially, the latest data was recorded before the change in the direction of interest rates."
Historically, there was a strong relationship between interest rates and foreign ownership levels and that should hold, implying further outflows of capital, he said.
Previous ownership falls had coincided with changes in the direction of interest rates. The December 2015 quarter changes reversed quickly as interest rates renewed falls and the United States interest rate rally since September and the changing outlook suggest further outflows ahead.
Australian ownership had been trending down but was still positive and more recently monthly data also suggested the momentum remained "incrementally positive", Mr Foster said.
Conversely, international ownership — excluding Australia — had deteriorated more than expected.
"While this has occurred in previous periods only to recover, the change in interest rate outlook may mean New Zealand’s more defensive earnings may be closer to losing their appeal."
Forsyth Barr had identified companies with the largest international ownership. The broker saw the greatest risk among companies where there were high levels of international ownership and where there was also limited valuation support.
Companies with those characteristics included Air New Zealand, Auckland Airport, Fletcher Building, Mercury Energy, SkyCity Entertainment, Spark and TradeMe.
"The question now is what happens when the outlook and level of interest rates has changed. Since September, the interest rate outlook has changed significantly."
The downward trend had ended and the US 10-year bond had risen by 0.95%. If the historic relationship remained, it would imply more selling ahead, Mr Foster said.
