Technically Speaking: Adding a spoke to ASX wheel

Friday 23rd February 2001

Australian Stock Exchange

The on-again, off-again romance between the Australian Stock Exchange and the New Zealand Stock Exchange is taking on the character of a Mills & Boon novel.

Will the stripling bride overcome her last-minute reluctance before the altar and succumb to the overbearing charms of her hulking suitor, the marriage sealed by a kiss scented with barbecued garlic prawns and Australian beer?

The Australian strategy is clear enough but should be further crystallised when the publically listed ASX (see chart) issues its annual report.

The ASX is moving to a global hub-and-spokes model of exchange inter-relationships. The model existed already in the way Australian state exchanges were linked up electronically into a nationwide market centred in Sydney.

New Zealand's Stock Exchange could be likened in size to one of the original Australian state exchanges, so in a way nothing that has not, in effect, been done before is proposed in merging our market with the bigger one next door.

Given the concerns of some NZSE members, it would be interesting to know how Australian state exchanges have found the arrangement.

But the ASX is also extending its development model internationally, with links to exchanges in the US and Singapore. In that context, New Zealand becomes an overseas addition to the ASX's far-flung trading web.

Whether the ASX is a hub or a spoke is relative to the size of the foreign sharemarket it connects to and the range of listings it offers from the overseas bourse. In relation to New Zealand, Australia would be the hub, but where the US and Singapore are concerned, it would be a spoke.

The strategy seems logical enough in it would enable Australia, and on its coat-tails, New Zealand, to avoid irrelevancy as ever-increasing sums of internationally mobile capital wash around the world seeking best rates of return combined with high levels of market liquidity. The isolationist, nation-state sharemarket is dead.

Some concern has arisen over whether New Zealand shares would have a board separate from Australian listings. Taking into account that an ANZ Bank report on our top 40 stocks found only one of them, Telecom, was justified in remaining in business on economic value-added return analysis, it could be that local stocks are in for a serious drubbing if they are listed on the same board as Australian companies. New Zealand investors would then no doubt have their curiosity aroused about the quality of research and advice they based their decisions on in buying local shares.

Although some Kiwi sharebrokers are worried about the end result of an ASX-dominated merger, it could be that the offer amounts to a last-chance golden parachute out of an industry in decline. Large capitalisation listings are dwindling with relocation of companies abroad and progressive dismantlement of the Fletcher Challenge empire.

The government is committed, in the words of Treasurer Michael Cullen to "non-privatisation," so no obvious replacements like TVNZ or New Zealand Post are in the offing. Institutions have cut their research spending by paying only for information from brokers they actually use.

The internet also threatens to do damage to the traditional involvement of brokers as intermediaries. The Economist reports that in South Korea, for example, nearly one-third by volume and two-thirds by value of share trades are transacted over the web.

With high internet penetration, Australia and New Zealand should be headed down the same path.

The government's and the NZSE's pro-merger factions appear to share a joint approach of "softly, softly, catchee monkey."

Sharemarket merger threatens to become a major political row both within and without the industry if not handled with the utmost tact and delicacy.

Comments from our readers

No comments yet