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Take a bow, Mr Weldon

By Andrea Fox

Wednesday 1st December 2004

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A lot of punters will be having themselves a jolly Christmas, following what was, by all accounts, a prosperous year. More than a few will be toasting NSX chief executive 37-year-old Mark Weldon.

It hasn't always been so. Only a few months ago one daily newspaper suggested "a chimpanzee throwing darts in the dark" could have picked a portfolio of winning stocks, such was the strength of the economy and a rekindled global affection for share investment.

For reasons best known to themselves, most market watchers were unwilling to give Weldon his due - though independent analyst Brian Gaynor prophesised back in June 2002, when the multi-degreed, New York-based investment hot-shot Kiwi was appointed, that his addition would be "a major turning point" for the-then mutualised NZSE.


Some are still hesitant to publicly applaud Weldon for enlivening the stock exchange. One leading broker, who wouldn't put his name to his comments, said Weldon had done "a brilliant job" and was "pretty visionary". He gave the exchange seven-and-a-half out of ten for performance.

Gaynor is more generous about Weldon. "He's really transformed it into a far more exciting place. He's gone out to encourage new listings, and that's the key. Most industries depend on new products. We went through more than ten years when we had virtually no new products, mainly because the stock exchange said that was the obligation of brokers."

The figures speak for themselves. Total market capitalisation was up $10 billion at $62.6 billion in the month of September (latest available figures at the time of writing), compared to September 2003. Over the same period,the number of New Zealand listed companies increased 14.35% to 183, and the value of shares traded on the now-demutualised NZX soared 47% to $2.7 billion.

The firmly grounded and affable Weldon is reluctant to rate his performance. "I always prefer to look forward rather than back. The job, when I turned up and started to dig into details, was bigger than I thought it would be. I have certainly worked as hard as I can since I started, so I'm not going to beat myself up on effort."

Gaynor says confidence in the New Zealand stock market has been restored. Companies are finding listing attractive, though the punters haven't been as lively as he expected given the strength of the market. "The older generation still remembers the 80s, and the younger generation is keen on property - they can borrow money so easily."

Investor confidence has improved in the past year, says John Cobb, head of retail broking for Goldman Sachs JBWere. With the Cullen superannuation fund also investing in stocks, there's a steady flow of new money coming in, he says. "Historically, it has struggled to maintain a level of investment. Now, for the first time, we're seeing a positive inflow into the managed fund industry."

The value of the NZX top 50 companies index has risen 50% since February 2003, Cobb notes. "The return on New Zealand equities over the year to date has been 16.5%, and that's after three years with very strong double-digit returns."

The Morgan Stanley Capital Index, which compares sharemarkets around the world, shows in the year to mid-October (latest figures available at print time) New Zealand's gross index had risen by 21.7%. This compares to an increase of 17.1% for Australia, 7.8% for the US, and 9.2% worldwide for the same period.

Weldon's doing a good job luring new customers and the market is performing well. But is that the result of the strong economy or better-run New Zealand companies? A bit of both, says Cobb. "We've had a very strong period of economic growth. Overlaying that, if you look at the composition of the index, there's the quality of the management and the cashflow generation of these companies - there's been a marked improvement."

It's now hard to find a poorly-run New Zealand company, whereas a few years ago Gaynor was pushed to find a well-run one. "I'm very enthusiastic about the younger generation, the 40-year-old guys becoming directors and running companies. They are far more competent than the people they replaced. Shareholders are seeing that [and] realising there's a lot of very good, top-class competent people there, who are there because they are competent, not because they knew someone and got in the side door."

The quality and composition of our market has never been better. But while listings have jumped, the exchange hasn't lowered its standards of entry as in past market booms, Cobb says. He credits the new regime at NZX with creating an environment that also gives investors confidence.

"There's a growing pool of savings and investment money out there," notes Cobb. Just under half the market is owned by offshore investors, and there's a lot of interest from Australia with its huge superannuation market. "Fund managers across the Tasman are constantly looking for new opportunities and clearly New Zealand is one close by. They are going deeper into our markets. In previous years, we've seen them across the top ten (companies), Telecom in particular, but now they are active in small, high-quality stocks."

Weldon notes that the New Zealand market has attracted overseas buyers in a year that global markets have also been doing well. Good returns are what lures them and New Zealand's dividend yield stacks up well globally, Cobb says. Another catalyst has been the continued focus of the government and the financial sector on savings and investment.

So where is the market heading?
Gaynor said this year's 21.7% performance, will be more like 8% to 10% in 2005. Goldman Sachs is expecting equity returns of around 7.5% in the next 12 months, more than double the 3.5% it expects from bonds. The predicted easing is because the economy is slowing, higher interest rates will likely curb the money available for equity investment, and the listing pace is expected to slow. However Goldman Sachs believes the listing of international class energy asset Vector could make 2005 one of the better years for the market in value terms.
The market is "fairly fully valued" now, Cobb says.

Weldon says local stocks have had a very strong performance this year "where a lot of people have had a good experience". But it's "probably about as high as you'd want it to be".

There's no room for navel gazing however, and there's still a lot of work to do at the exchange. Weldon agrees with Gaynor that the sharemarket still doesn't accurately reflect the agricultural base of the economy, and says he'd love to see a public listing from the dairy industry. And there's a lot of regulatory housework to do and new businesses to start (see box) to ensure the exchange has diverse revenue sources.

It sounds like Weldon's just getting into his stride.

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