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The NZSE miracle wealth emollient rubs wrong way

By Michael Coote

Friday 21st February 2003

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We fervently might hope Knowledge Wave II does not imitate its predecessor and break impotently over the ideological reefs and shoals of purblind social democracy. Were KW II to have some beneficial effect, it might be expected to buoy the fortunes of Stock Exchange listings in its flood.

The NZSE itself has been gilding the lily and girding its loins for halcyon days of sustained 4% annual economic growth ahead. KW II had better deliver, although if it does not, that will not be for lack of the NZSE's trying to meet it halfway out to sea. A reverse King Canute, the NZSE will beckon the rising tide hither.

Preparations have been laid. The NZSE has presciently converted itself into a PR flack for its own goods and services. One of the highlights of 2003 will be the auspicious introduction of the NZSE50 gross index to replace the NZSE40 capital index.

The latter has been something of a foot dragger performance-wise in the headlong charge to a Brave New Economy and is to be shot to encourage the rest.

In the sorry few years of its calculation it has shown an uninspiring tendency to suggest that in capital value our sharemarket oscillates like a sine wave about a stubbornly horizontal axis. Not a good look for the in-depth, 30-second sound bite of market analysis beamed nightly on television news.

No more such discouragement of local equities investment by retirement savers is to be tolerated. Henceforward dividends will be rolled up into capital value to produce an index that knows only how to shoot for the stars.

The experiment is novel, given that respectable sharemarket indices worldwide are net of dividends, not gross. However, a country such as Zimbabwe, eager for some positive spin on its economic management, may well follow suit and replicate the NZSE's trailblazing.

Making 50 stocks rather than 40 the focus of investor attention may have the merit of expanding the shopping lists of fund managers. But more stocks in fund managers' trundlers may not boost the takings of the NZSE unless local investors loosen their purse strings.

True, there is the Big Cullen Fund to rely on to trawl the aisles for staples across an expanded range of wares but it is the discretionary purchases of managed fund investors that will stuff the tills.

Accordingly, NZSE chief executive Mark Weldon, after going on record with some snarly remarks about Wellington, seat of his bourse, has recently opined (www.goodreturns.co.nz) that fund managers and investors who order insufficiently from the exchange's goodly bill of fare are flat-earthers.

These ignoramuses who invest over the horizon at which the world ends allegedly need to be brought to account by enraged Kiwi battlers sorely disabused of international diversification by the three-year bear market that, fortuitously for Mr Weldon's case, has so far by-passed his own bailiwick. There but for the grace of God goes he.

"Tell me how much I can put in New Zealand at good returns and only after that will I invest offshore" is the resoundingly self-denying maxim Mr Weldon commends investors to put to their advisers and fund managers.

We leave limited listing choice, spotty historical performance, low economic value-added considerations, high local interest rates and a boom-bust, price-taking commodity-based economy ­ not to mention the amount of wealth disproportionately tied up in New Zealand by the family home ­ out of the question, it seems.

For good measure, Mr Weldon throws in an appeal to patriotism oddly combined with a perhaps ill-considered unfavourable comparison with Australia, where 40% of domestic funds reach the Australian Stock Exchange versus 15% for the NZSE.

The next NZSE brainwave may possibly come in the form of late night infomercials aimed at cash-rich insomniacs. A Kiwi star ­ some fairytale Cinderella or ugly duckling made good such as the exchange hopes to become ­ could host, with fulsomely delighted investor testimonials to back up the cosmetic efficacy of new NZSE50 Miracle Wealth Emollient, enriched with snake oil. "Look what it did to the index," squeals one such financially enlarged beneficiary, "It did just the same for me!"

Another paid participant spontaneously volunteers, "I used to think I had ugly local shares until I tried new NZSE50 Miracle Wealth Emollient." "No, no, you don't have ugly local shares, you have beautiful NZSE equities," interjects the host, at which point everyone bursts into tears, so emotionally poignant and disburdening is this shared moment of unselfconscious revelation. "Try new NZSE50 Miracle Wealth Emollient, continues the presenter, "It's gross and not tested on animals."

Up comes the 0800 number. Viewers are advised that if they call in the next 50 seconds not only can they put their life savings into the local sharemarket but they will also get a complimentary NZSE50 pre-first anniversary special edition Superweldon comic book featuring his career defying leap from Wall Street to Hunter Street.

The last apt word goes to Mr Weldon: "The flat earth elements of New Zealand society ... believe that the guardian angel of market goodness will send rewards our way if we behave nicely. Nonsense." Now that is a good bedtime story.

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


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