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ASX/Singapore tie-up 'good for Australia, bad for us'

Tuesday 26th October 2010

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The Singapore stock exchange takeover of its Australian counterpart is “good for Australia, bad for us,” says Troy Bowker, a close adviser to Prime Minister John Key on the proposal to develop a global financial services “back office” in New Zealand.  

“The more Asian markets keep growing, the better for this part of the world for attracting capital,” said Bowker, whose firm has assisted Canadian fibre-optic network installers Axia in a bid for involvement with the government’s ultra-fast broadband initiative.

 “So it’s good for Australia and good for Asia, but not so good for New Zealand,” Bowker said. “It means we are marginalised. We should remain open to the idea of consolidation for our stock exchange.”

The ASX attempted to take over the New Zealand stock exchange in 2001, and was rebuffed, largely on national interest arguments. NZX, which runs the exchange today, floated subsequently and the issue of a merger has not been on its agenda. Shares of ASX soared 19% to A$41.75 yesterday. NZX climbed 3.2% to $1.60 today.

“Good for them also in the sense of being open to it and not turning it away, not being against the idea,” said Bowker, a principal of private equity firm Caniwi Capital and a member of Key’s taskforce to develop the Capital Markets Development Taskforce’s suggestion that New Zealand could be a high quality, low-cost hub for servicing the global financial industry.

The New Zealand managing partner for accounting firm KPMG, Godfrey Boyce, said: “For Australian companies, it’s probably positive, but for companies only listed here, their profile is lessened again. It would be something of a concern if it becomes a catalyst for drawing more companies to the ASX.”

While there would still be a role for a New Zealand public capital-raising market, many firms would question the value of listing in a relatively illiquid market against the fees and disclosure compliance costs of maintaining an NZX listing.

“This means we are very much heading down the niche player path,” said Roger Wallis, a partner and securities law specialist at legal firm Chapman Tripp. The SGX/ASX tie-up was a “drive for scale” which would make the New Zealand capital market opportunities “correspondingly smaller again.”

NZX chief executive Mark Weldon was quoted today as saying the moves reinforced NZX’s strategy to create focus in agricultural data and derivatives, such as the recently launched dairy futures, as this remained a “wide open space.”

He expected a trend towards “seven or eight” global exchanges, and the development a tier of specialist exchanges below that.

Bowker said the existence of a niche player exchange in New Zealand and its integration with a global platform should not be regarded as mutually exclusive. 

“You can have a niche approach, but you don’t have to remain in isolation,” he said. “If the right approach comes along, we should look at it and not necessarily turn it down as something we are against ideologically. NZX would argue that they are fulfilling a boutique niche strategy, but also acknowledge that by doing that they are not participating in a bigger regional market that they could be,” he said.

“I would like to see the New Zealand economy embracing more open markets and participating in a broader Asian strategy, which means being open to foreign ownership or joint ventures," he said.

Other market observers suggested there would be a trend towards New Zealand’s largest listed companies either dual-listing on the NZX and ASX, or moving to the ASX altogether.

Fletcher Building and Telecom are both ASX-listed, although the third largest NZX stock by market capitalisation, Contact Energy, delisted from the ASX listing some years ago.

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