Rest of the world shows little interest in little old NZ

Friday 2nd March 2001

The merger of the New Zealand Stock Exchange with its Australian counterpart is off the agenda for the meantime but the issue could be seen as another example of this country overstating its place and importance in the world scene when considered in the context of each market's relative strengths.

There are two opposing views:

A merger would swamp equity trading in New Zealand companies as investors, fund managers and brokers concentrated on large Australian companies to the detriment of smaller New Zealand enterprises, leading to more local companies transferring head offices to Australia. There could also be problems in raising new capital. The general question related to identity;
A merger would bring the New Zealand equity market further into the mainstream of global trading, a trend that is expected to accelerate in future. New Zealand would be better off as part of a bigger, stronger market, rather than remaining a small investment backwater.

The pros and cons of these views were well canvassed in many places, including The National Business Review, over the past year and there is no need to rehash them here.

It is pertinent to examine the size of the respective markets and leading companies because there seems to be a tendency among some observers of financial markets, including investors and politicians, to exaggerate New Zealand equity activity.

Reaction to the Montana affair was an example. Critics of the Stock Exchange's market surveillance panel's rule waiver claimed New Zealand reinforced its "wild west" image in the eyes of other countries. The exchange countered with the view it had not heard any adverse overseas reaction, seemingly intimating there was no dissatisfaction with the panel's action.

Both arguments were probably right and wrong. Media and organisational reaction overseas was almost non-existent. This neither proves nor disproves a view that New Zealand has a wild west image.

Nor can it be interpreted as showing overseas observers were happy with the waiver decision. It could more likely reflect the usual lack of interest (total in some non-financial activities) about New Zealand in general and specific events in particular.

The latter attract the attention of local people who write letters to editors and the strange denizens of talkback radio shows, including "hosts" who seem to be experts on everything while knowing little about anything.

New Zealanders' daily concerns create little interest in other countries. The sharemarket lacks a high rating overseas because of its size, relative liquidity and limited range of industries. Its capitalisation is outside the top 30 in the world, the exact position (and those of other countries) subject to regular change, even on a daily basis.

Australia, by comparison is usually in the top dozen. The table shows a comparison of the top 12 companies in each country.

Some points stand out.

Telecom was the New Zealand company with capitalisation of $NZ9.02 billion. Its share price has dropped sharply over the past year but it still accounted for 17% of the total market of $53.13 million..

Telecom would have been outside the top 12 in Australia, even before taking the exchange rate into account. Woodside occupied 12th spot in Australia, although the base share price was related to a takeover offer from Shell for the shares it did not already own.

Other figures can be compiled from the table. At an exchange rate of $1 = 81A¢, the top 12 New Zealand companies were worth just 6.73% of the top 12 in Australia.

Total capitalisation of the New Zealand market was only 12.65% of the top 12 companies in Australia.

(Total market capitalisation of the Australian market was unavailable but it was clear the New Zealand total would be a tiny percentage of the Australian.)

Companies in the table showed general differences between equity investments in the two countries. The Australian list had four banks. Apart from a WestpacTrust security and an ANZ New Zealand register, there were no New Zealand banks.

Utilities were on both lists but the Australian companies' capitalisations were much bigger.

Among media companies, the massive, worldwide News Corporation is the major shareholder in INL, which in turn owns 49% of Sky TV.

A comparison of the two lists also shows the internationalisation (or "globalisation"' in the case of Australia) of leading companies, a matter that can be related to merging the exchanges. Every company on the Australian list had international operations and/or shareholders but the shareholding situation and operational bases had one element absent from New Zealand's outlook on business.

As noted here on February 16, Australian companies are going offshore and welcome a "branch economy."

Back here, Fletcher Challenge Energy is in the process of being sold to overseas interests, Carter Holt Harvey is under US control, Lion Nathan operates from Australia and is under the control of a Japanese brewer, Contact Energy is controlled from the US, Sky TV is indirectly but effectively under News Corporation's control and INL likewise.

Add in the other companies that have gone elsewhere, or have major shareholders based overseas but are not in the table, and the argument about an independent equity market and/or the paramount importance of a New Zealand approach to businesses operating here become theoretical, with little regard to reality.

The following companies, apart from those in the table, are either based overseas or have dominant overseas shareholders: Air New Zealand, Bendon, BIL, CDL Hotels, CDL Investments, DB Group, Grocorp, Montana (through Lion Nathan), NZ Refining, Natural Gas Corporation, Nufarm, Tasman Agriculture and Tranz Rail.

All investors have moved ahead of the local stock exchange in their awareness to go beyond the narrow range of industries and locally owned groups available in New Zealand.

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