The NZX has been left out of the ASX's and the Singapore Exchange's (SGX) merger plans, which raises the question: Where does the stagnating local exchange go from here?There are doubts as to whether the $A8.4 billion deal will go through, because it will
The NZX has been left out of the ASX’s and the Singapore Exchange’s (SGX) merger plans, which raises the question: Where does the stagnating local exchange go from here?
There are doubts as to whether the $A8.4 billion deal will go through, because it will require the sanction of Australia’s finely-balanced parliament.
Prime Minister Julia Gillard’s Labor Party holds 72 seats in the 150-seat House of Representatives, and only governs with the support of Greens MP Adam Brandt and three independents.
If it proves successful, Australian analysts suggested NZX could at some point be a “bolt on” for the enlarged group. Whichever way it goes, it does highlight the fact that the local exchange’s role in the broader economy has steadily diminished over time.
ASX and SGX intend to run their exchanges as separate entities, with their own market surveillance functions, so a successful marriage between the two should not change things greatly for the NZX.
And Forsyth Barr analyst Guy Hallwright said the merger would not marginalise the local market any more than it is at the moment.
“It is basically not of huge interest to most offshore investors but it is of interest to some in Australia and it will probably continue to be,” he said.
But brokers said the merger does bring up issues that have been around for a while. “Our market has not really gone anywhere, either in volume or market capitalisation terms,” Mr Hallwright said.
“And in relation to foreign markets, it’s gone down, because trading volumes and market caps internationally have risen a lot,” he said.
“It’s not dying – it’s just that it hasn’t grown,” he said.
The NZX has itself recognised its own limitations and has diversified away from share trading and into agricultural publishing, information services and derivatives.
“We are already probably a niche market and that is a term that flatters us in terms of where we sit in the global scene.” Goldman Sachs’ New Zealand strategist Bernard Doyle said.
“Whether or not the ASX/SGX has any direct implications for us, I think it underlines the fact that as a stock exchange, we need to plan because I just don’t think it is realistic for us to sit here while increasingly concentrated goupings of exchanges are being formed and just hoping that we can carry on as we are,” he said.
In 2001, NZX sent the ASX packing when it made a takeover offer but Mr Doyle did not see that as a mistake. He said the NZX needed to be choosy about who and how ownership or alliances are formed.
“The biggest message out of this is that we need to be seriously looking at some options. The obvious one is having some sort of relationship with Australia,” he said.
NZX’s significance to the broader economy has diminished over the years, with some of the bigger companies, such as Carter Holt Harvey, going private.
The local exchange’s total market capitalisation as a proportion of GDP has been falling while the proportion in other countries, even during the financial crisis, has been increasing.
The investment community has often called for the government to unleash some privatisations on the market to add much needed depth. But Mr Doyle said it did not see privatisations as a silver bullet for the exchange’s problems.
However, he questioned why some assets, such as the state’s power generating assets, have not been used to encourage better savings behaviour, as opposed to the type that led to the finance company meltdown.
Mr Doyle said there was also danger that the NZX could lose critical mass.
“To me the size of the stock exchange is important. At the moment, it is kind of borderline.”
