Imagine if we had the same pride in our capital markets as we do in the All Blacks, writes Liam Dann

Incoming NZX chief executive Tim Bennett has talked about New Zealand's capital markets needing to inspire the kind of national pride that the All Blacks do. Imagine that. Based on current public attitudes it seems hopelessly optimistic.

But if it were ever achieved you could be sure New Zealand would be a far wealthier nation with considerably more opportunity for its up-and-coming generations.

To engender a similar sense national pride to that we have for the All Blacks we'd need to believe that our markets were the strongest, fittest and potentially the best in the world.

We'd need to have confidence not just in the main board of the Stock Exchange but in the framework around it - the regulatory system, the pipeline of companies coming through. We'd need a world-class investment industry and New Zealanders would have to be world-class savers.


To match the pride we have in the All Blacks it would not be enough to simply sit back and accept our markets are okay for a nation of our size.

We are nowhere near the kind of attitude needed to make that a reality. But nevertheless it is promising to hear Bennett offering up some vision of capital markets can achieve.

It would be all too easy to be complacent right now. In the fourth quarter of 2012 New Zealand's capital markets raised more money by IPO than all Europe. Of course Europe was frozen of on the brink of a sovereign debt crisis so only US$217 million of IPOs got away. Meanwhile the NZX had the rare treat of two decent sized listings in a quarter - Summerset and 25 per cent of Trade Me.

The NZX has bounced back well from the GFC - better than most other global markets. And there is a pipeline of companies scheduled for listing - albeit a cluster of state-owned power companies.

Anticipation around the partial float of Mighty River, Meridian and Solid Energy and Genesis has been building for some time and they will certainly provide a shot in the arm for the NZX. They will added some much needed depth. But to be lulled into the belief that they will provide any kind of structural solution to the local markets would be foolish.

The arrival of four mature energy companies doesn't greatly add to the breadth of stocks on the market, for example. New Zealand markets are still woefully underperforming in terms of providing an accurate listed reflection of our wider economic makeup.

To correct that deficiency the NZX needs to coax more agricultural, tourism and technology companies on board. That is a huge challenge. Our major agricultural companies are determined to keep their equity locked up in co-operatives.

Our tourism sector is dominated by myriad small operators. Our technology sector is perhaps better represented than people realise if you include smart manufacturers like F&P Healthcare and Rakon.

In the brave new world of the online business model Xero and Trade Me are leading the charge but there is tremendous potential for the NZX to capture more up and coming dot.coms.

The NZX has tried to make its self appealing to smart start-ups with its alternative market. The difficulty, again, comes back to lack of local capital and enough investors with a large enough portfolio to back companies on a growth path rather than a treadmill of dividend delivery.

A nation's ability to raise capital is at the front and centre of its ability to create wealth. A thousand creative ideas won't feed the next generation unless they can be made real to create wealth - and to be brought to the global market, companies need capital.

New Zealand's business success is built on the hard work done by an agricultural business leader over a long historical period. Fonterra - a company that can claim some parallels to the All Blacks in its dominance of its field - has it roots in the many co-operative dairy groups that went before it and the NZ Dairy Board. The industry's success has come about not just because this country is a good place to grow grass but because farmers have been prepared to invest to return profits to the business so it can grow. Our listed businesses could learn plenty from the way the co-operatives have run themselves for long term gain over the years.

The great hope on the local investment front is really the success of KiwiSaver. But even as it hits a critical mass and adds some meaningful weight to the local market it is still worth remembering we have a terrible savings rate as a nation. Look at Australia or Japan or even the US.

New Zealanders remained obsessed with property, partly because the tax system still favours it as an investment class and partly because they have no choice if they want to own their own home.

The Government has tinkered with the tax rules and the results of that may be still to flow through.

However, ominous signs of a market bubble in parts of Auckland suggest that little has really changed.

As long as the Government refuses to look at a capital gains tax for property, the capital market - with all its power to create real wealth for the nation - will be hamstrung.

There is a role for Governments to set rules which steer markets towards a longer-term focus with more benefit for the nation, and in almost all Western economies the Government does that.

That doesn't require direct intervention and it doesn't need to scare off foreign capital.

What scares foreign investors are rules that a subject to change on political whims.

Markets need certainty. New Zealand needs to get clear, simple and sustainable rules in place now that can be held up to the rest of the world with pride.

In terms of regulating the market to ensure investors have trust in the companies on it, good progress has been made and further changes are working their way through the law-making process.

But there is only so much good regulation can do. The holy grail of a market that New Zealanders speak about with pride when they are travelling the world is one that will require a commitment from all of us - the investment industry, the Government, the media, regulators and the business itself.

It can happen, but we have to choose to make it a priority.

* Liam Dann is the Herald's business editor. Follow him on Twitter: @liamdann