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Technically Speaking: We want some action, NZSE, not your PR pap

Friday 11th August 2000

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Australian Stock Exchange

Gold Index

There are deckchairs to rearrange on a sinking Titanic, lyres to strum as Rome burns, lemmings to plunge from cliffs and now a PR firm to tell us the NZSE is something other than a dead duck. If one lives for long enough, one gets to see it all.

The consensus with stock exchanges such as the Australian Stock Exchange, New York Stock Exchange and Nasdaq is they are in the business of selling information. Communication is how they survive. They stand or fall by how well they intermediate news about their listings to investors.

Contemporary stock exchanges tout internationally for listings on the strength of their communication abilities. They must think outside their own national borders. Today's stock exchange with a future has to sell itself globally as the marketplace that companies would die to be listed on. The NYSE and the Nasdaq are frontrunners at this kind of self-promotion, but the ASX is going all out to catch up by recruiting presently unlisted American companies with capitalisation at several hundred million dollars as its speciality niche.

The shrivelling NZSE, an exchange that companies list on to die, has in its arcane wisdom decided it should pay some outside communicators to enhance its own gloomy survival chances.

Honest advice would inform the Stock Exchange it is well past its use-by date and should drop dead as an independent entity.

Perhaps the NZSE is using a PR firm to tidy up its image for impending sale. If so, it may need extensive cosmetic surgery.

New Zealand has had enough of being ill-served by a Clayton's sharemarket. By Singaporean government standards revealed in closer economic partnership (CEP) negotiations with our own government, the only ignominy apparently missing from the NZSE is a Waitangi Tribunal claim - but give it time.

New Zealand is not the best place for investors to raise equity capital, generally speaking. It is not as if mums and dads are not keen sharemarket punters, as earlier unhappy private sector forays into Equiticorp, Brierley Investments and Robert Jones Investments and more latterly ex-public sector cast-offs such as Contact Energy and Capital Properties evince. Their money keeps on coming. Not to mention the incredible vanishing Fletcher Challenge sideshow act. Ostriches would give some of these listings a fair run for their money. The NZSE is almost alone worldwide in not surpassing pre-1987 crash index levels.

In recent years much post-listing behaviour of new shares has been appalling. There is the usual ramping at the outset. Then the share price typically goes into decline and often stays there. A pattern is emerging of companies listing so proprietors can cash in twice over - once on listing and then again on takeover bid. Cashbox companies are being rorted by selective IT prospect leaks.

The NZSE has been unable to sell the management contract for its poorly performing listed Tenz passive fund, whereas a copycat international share fund like AMP's Winz has roared away. Major companies like Nufarm, Brierley Investments and Lion Nathan have quit the NZSE as their primary listing. Others are said to be poised to follow. In their place stamp dealers and share tipsters get listed in the newly minted slack rules table. The NZSE is looking like a cross between a graveyard and a rubbish tip.

The NZSE is not attracting and retaining enough high-quality capital to remain viable in today's ruthlessly competitive world capital markets and as a result is internationally marginalised. That is a core problem public relations is unlikely to fix. National, single-country sharemarkets are on the way out as international, multiple country sharemarkets are phased in. The NZSE is on the wrong side of history if it persists in going it alone and is too small by overseas standards to dictate terms on merger or sale. It will be a price taker and not a price maker on any rescue deal.

The ANZ Bank has kindly informed us that, on an economic value-added basis, all but Telecom of our major listings cannot compete with money on deposit.

Cranking out the good oil will not change the economics of a dud exchange. The NZSE can point the finger at any number of blameworthy external reasons for its undesirability as a place to transact equity capital, but in the end it must ask itself why as a business it is not a top sharemarket fetching top listings and an internationally popular investor capital destination.

It is the NZSE's job to sort out its own failings, rather than pay some one else to paper over the cracks.

So what good news would a PR firm have to tell us about the NZSE? That it is shutting down? That the normalities of the business world now apply to our own exchange? Perhaps the truth, which would be a refreshing change from the stream of self-congratulation the exchange has issued in the past. But that would mean a short stint as the NZSE's flack. A tricky job, really, so let's save the poor dears the trouble.

The NZSE is an orphan exchange responsible for just 0.2% and dwindling of the Morgan Stanley capital index measure of global equity. It will probably be kicked out of the MSCI before long and then cease to feature in international fund manager asset allocations. To be off the MSCI radar screen is sharemarket death. At that point, only the Cullen cash cow of requisitioned retirement pre-funding will save the moribund NZSE from rivalling Outer Mongolia as a hot destination for smart money.

The NZSE will be lucky if the ASX even bothers to take on responsibility for it, particularly when Eion Edgar's diplomatic finesse is taken into account. Having informed the Australians he and his NZSE buddies could run the listed ASX better than present management, all he has to do now is mention underarm bowling to clinch the deal.

As a high-profile listed company, the ASX headhunts the best people it can find, whereas the NZSE seems to play musical chairs with the same familiar cast. The NZSE appears stale and provincial, whereas the ASX is genuinely global and refreshing.

Unlike the tightly governed ASX, the NZSE is conspicuously home to hopeless companies and insider manipulation by pied pipers and con artists. The most flagrant exploitation of shareholders produces only throat-clearing from the NZSE's defanged watchdog poodles. A rarely used stock of wet bus tickets is kept on hand to flagellate miscreants.

The NZSE is a smug old boys' network concerned primarily with protecting its own cartel. In the futures and options market, the New Zealand Futures & Options Exchange has been owned and operated successfully for some time by the Sydney Futures & Options Exchange and the NZSE is long overdue to follow suit under the ASX. Simple really but probably not what the NZSE wants to pass off as its achievements.

The major achievement the NZSE might have had - being an international consulting firm for electronic sharemarkets - has slipped through its fingers. Others have caught up or gone further with computerised exchanges. It should undertake voluntary self-liquidation, not hired self-congratulation. With its flash new PR firm, the NZSE is using its members' money to pay for what it wants to hear. It promises to be an accommodating audience. The rest of us will not be fooled.

The chart shows the ASX's recent market performance (chart 1). Being listed imposes its own disciplines on the Australian sharemarket operator. The ASX is obliged to be transparent and accountable because it has public shareholders breathing down its neck. It also has a great website, including an investment education section for kids.

The ASX's gold index (chart 2) suggests technical recovery in a languishing sector. We can only look across the Tasman in envy at the go-ahead spectacle the ASX presents.

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