Forum Archive Index - May 2001

["G Stolwyk" <stolwyk@wave.co.nz>]

 

Hugh,

 

Let us talk about the deregulation in OECD countries. As you know, this action is proceeding in various ways and there have been some unexpected results!

 

H:Yes, but I would like to make a distinction beween deregulation inside a country, and its acceptance of international deregulation.

 

An example of the first one was the initial deregulation of NZ power companies. Arising from fears of perceived monopolies, the then Government stepped in with new laws. Consumers have since been looking for price relief!

 

G: What was the effect on long term investment?  H: Initially, there were a lot of take-overs and many companies disappeared.

 

G: But many made money, did'nt they? All the same, these long term shareholders had to make new decisions as to reinvesting the cash. 

 

H: As I see it, international deregulation while bringing benefits to large international companies, can have some negative effects on smaller economies, one reason being that the big boys tend to have the cash to take over the smaller companies irrespective of the latter having taken over others. 

 

Australia has laws to prevent dominance in the various sectors: They prevent the larger Australian Banks from taking each other over.

 

That will not prevent a large foreign Bank from making a takeover bid for any Australian Bank! Being much larger, they could then increase market share, using Australian money.  

 

However, after the Woodside affair, the goal posts will have changed, I think!  As to key decisions, the " independent " approval of Qantas taking over IMPULSE has been described as " patriotic " by many!

 

G:The Internationals have the overriding urgency to gobble up other companies, before their competitors beat them to it. 

 

H: There is evidence to indicate that this does not always work. All the same, these takeovers lead to bigger ones till in the end some international Cartels could be formed.

 

One can only hope that the trading blocks will have the will power to break these up!

 

G: Following the forming of the oil sector Cartel, we now see a strong consolidation in the metals and coal mining sectors. What will this mean to the long term investor?

 

H: The latest takeovers are massive and involve a lot of cash. This is a problem as in many, the alternative of scrip is not offered. I get the feeling that the effect of these massive mergers and takeovers cannot be quickly enough undone by the forming of large new companies.

 

Sure, we form new companies all the time, but the sum total of their market capitalisation may fall far short of what is needed! Some countries, including Germany, are making it easier for unlisted companies to become listed and so, to an extent, alleviate this problem.  Mind you, the overriding reason is that all countries of the EEC will need to conform to the same laws. 

 

The long term investor will now frequently have to make a choice as to how reinvest the money. No wonder that many join Investment and Unit trusts. Management of a well run Trust can also be " much closer " to the companies, they invest in!  

 

G: Does research indicate that Fund Managers have shortened their investment time scales?

 

H: Yes, I read that they are given less time to prove themselves; as a consequence, adjustments to their portfolios are more frequent and ruthless! This in turn can result in more volatile markets. I have seen a few examples in Australia, lately.

 

What I am getting at, is, that now more than ever, the long term investor has to look over his / her shoulder to see " that the rug is not being pulled from under his / her feet ". 

 

Time scales are shorter and events can suddenly occur due to a variety of factors. Misinformation and poor conduct from intermediaries are also common nowadays!

 

Gerry