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Treasurer and NZSE chairman must face up to investor apathy

Friday 3rd March 2000

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The O'Brien Column

The dreaded concept of government intervention in the marketplace got a new angle last week when Finance Minister Michael Cullen took a swipe at the Stock Exchange and its operations, apparently blaming the worthy institution for the poor performance of equity prices.

A ghostly hee-hee seemed to be heard from wherever the shades of former finance ministers go when they depart this mortal coil. (Given the activities of some of them over past years, opinions will vary on whether they abide in Elysian fields, or, in the words of a scurrilous old Irish ballad on a "warrum sate, up beside the special grate.")

Dr Cullen seemed to be concerned about the regulatory regime; rules on insider trading, lack of an effective takeovers code and similar matters and their effect on the market's performance.

He may have a point about some unsatisfactory aspects of regulation but he stretched things when relating that to share price and market index performance.

Stock Exchange chairman Eion Edgar, who should have some sophistication in political debate, seemed to take an automatically reactive stance when he was reported as saying Dr Cullen was shooting the messenger.

Mr Edgar called for more privatisation of state assets to overcome the lack of breadth of listed companies.

We have seen overseas investors get the major share of stock-exchange-listed privatised state organisations and play pass-the-parcel when they saw appropriate opportunities.

Telecom, Tranz Rail, Contact Energy and TransAlta (a non-government public asset) were examples of the process, although not all have passed the parcel.

The parcel game often involves passing it on to another overseas investor.

Mr Edgar's organisation has some ignoble aspects in its tradition including, among other incidents, the days when the exchange constantly refused to give official listing to the then R A Brierley Investments because a couple of regional exchanges that often traded fewer shares each week than the investment company managed to outvote the major, professional operators.

The exchange has often pointed to its reforms, without noting that several were reactions to events, rather than exchange-inspired initiatives.

Dr Cullen's comments had additional interest because they were made after the so-called first 100 days and at a time when the Labour-Alliance coalition was asserting itself in many areas that dominated headlines in recent weeks.

There are many people who are neither politicians nor sharebrokers who have been involved in the securities industry longer than Dr Cullen and even Mr Edgar who would consider the ministerial swipe and the automatic reaction as equally daft.

Dr Cullen should refer back to the late Sir Robert Muldoon's hits on carefully selected targets. Although he was renowned for his bullying tactics, he also mastered his facts and his blasting of specific individuals, companies and other entities was carefully grounded.

There was a notable exception just before the 1975 election when he praised a financial company in a speech made at the then James Cook Hotel in Wellington. That company went out the door a short time later.

Before people involved directly or indirectly in financial markets get hot about Dr Cullen's comments they should remember he could be following some personal and/or party agenda for reasons not yet disclosed.

They should also remember Labour's coalition partners include the Alliance, which has proposals for venture capital development finance.

The Stock Exchange could not be described as a vehicle for raising capital for companies trying to reach critical mass. There is also the point that exchange membership is not within the financial scope of the average clerk, a matter which can cause problems with the organisation's public image.

Mr Edgar's reported reference to the new capital markets initiative could, again depending on one's viewpoint, be either a noble development to help the strugglers or a laughable attempt, at least in its initial format, to upturn the Securities Act's prospectus and marketing requirements.

Ministers either take advice from their public service, or office, staff, or strike out on their own. It would be interesting to know whether Dr Cullen acted on advice and if so, whose, or whether he was indulging himself.

Both Dr Cullen and Mr Edgar have a problem to face. The people based overseas who control New Zealand's equity market in terms of buying and selling volumes have little interest in ministers of a country the size of an average overseas city and are not particularly concerned about the performance of a stock exchange that has a minuscule impact on world trading.

The protagonists in the debate should realise that those matters are real issues in the New Zealand sharemarket. Being two good Dunedin lads, they may have already privately resolved their differences in the usual manner of New Zealand's open-ended Establishment.

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