Listed companies unlikely to get foreign investors' blood rushing

Friday 21st July 2000

Even the All Blacks' win against Australia didn't give the Stock Exchange a jolt of energy, writes PETER V O'BRIEN

The talkback radio host who reckoned on Sunday that the sharemarket could do well on Monday after New Zealand's notable sporting successes on the weekend would be having a rethink.

His comment was based on the idea the market reflects any "feel good" emotion in the community.

Maybe, but the idea had not translated into action this week, at least when this article went to press.

The New Zealand sharemarket lumbered along with little sense of direction, with the exception of a few shares such as Fletcher Challenge, which was pushed up in anticipation of the letter stock being spun off from the Fletcher Challenge group.

It was different in Australia, where the all-ordinaries index on Monday was 3273, only seven points below the all-time high of 3280, reached during trading on July 12, and 3.3 points under the record daily closing level of 3276.3 on the same day.

Australia as a whole would shrug off a rugby union test match loss to New Zealand, given union's relatively minor status among oval-ball sports in that country.

The Australian sharemarket has consistently hit new records during the past two years and shows little signs of slowing down in the near future.

Slinging off at Australia and Australians is a favourite New Zealand pastime, which may reflect some kind of national inferiority complex, but the facts are that Australia is much bigger than New Zealand in terms of population, resources and every financial and economic measure.

The whole New Zealand population, for example could be fitted into either Sydney or Melbourne, perhaps with a bit of a squeeze.

It was noted in The National Business Review on May 5, that a "good day" on the New Zealand Stock Exchange would see share trading values of about $NZ90-100 million after removing special deals with large blocks of shares.

Daily values have been higher this month, due mainly to trading in Telecom, a high-priced stock.

National daily turnover in Australia is usually between $A1.4 billion and $A1.6 billion, which means there is close to 15 times (unadjusted for currency translation) the value traded across the Tasman than in New Zealand, again with the exception of trading here in most of July.

That ratio is an example of how greater general size can generate disproportionate financial and economic activity.

Current trends toward globalisation or regionalisation of stock exchanges, coupled with Australia's greater size, make it imperative some form of merger or partnership between the New Zealand and Australian exchanges is put together soon.

The globalisation trend took another step last week when the London and Frankfurt exchanges moved closer to effectively one exchange and were developing a deal with Nasdaq in the US.

There may be fears among some sections of the New Zealand broking profession that the Australian exchange's greater size would swamp us but that capacity exists already.

There are few standalone broking firms of any size in New Zealand, with most of the big organisations having formal international connections.

The Australian exchange runs a much wider range of non-trading activities than New Zealand, some of which New Zealanders buy.

That fact seems to have been overlooked in apparent ideas that the higher proportionate staffing levels of the Australian exchange is a sign of inefficiency.

New Zealand's narrowly based industrial structure is another inhibitor on market growth.

The financial sector is almost non-existent, apart from a few small companies and Tower, with most of the action in that area being done in Australian-based companies with dual listings.

Fletcher Challenge Energy, New Zealand Oil & Gas and Otter are the only producers in the mining sector, whereas Australia is among the world's major mineral, oil and gas producers with many large listed companies.

The New Zealand high-technology sector is a group of developing companies apart from Telecom which can be classified in a broader telecommunications and technology grouping.

We come down to primary-produce and rural-servicing companies, property, tourism and leisure, retailers, transport, energy (electricity and gas), port operators, industrial-investment holding groups, healthcare, publishing and broadcasting, liquor, forestry and forest products and sundry manufacturers and service companies.

That is hardly a lineup to get the international investment blood surging, particularly as the New Zealand exchange has an inordinately large number of companies with relatively small numbers of shares on issue and equivalently small capitalisation.

Then we come to the wellknown fact there are dominant shareholders in many New Zealand-listed companies, both large and small.

It would add to the debate about the state of the New Zealand sharemarket if the brokers provided figures on how much of their income is generated from dealing in overseas-based stocks, whether traded on the local exchange or through international markets.

Anyone who has doubts about New Zealand's place in the investment world should look at the share tables in The National Business Review.

The New Zealand table has 176 listings, including dual-listed stocks but excluding notes, options and other securities.

There are 258 listings in the Australian section, excluding companies based outside Australia, and that is only a sample of the Australian list.

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