By Brian Fallow
WELLINGTON - Finance Minister Michael Cullen and stock exchange chairman Eion Edgar traded fire yesterday over whether inadequate regulation should carry some of the blame for the sharemarket's poor performance.
The stock exchange's main barometer, the NZSE-40 capital index, continues to flatline despite 18 months of economic upswing.
Mr Edgar said that to blame the regulatory environment would be a case of shooting the messenger because you do not like the message.
The exchange considered falls in the prices of major stocks at a time of good profit results had to be taken as reflecting a lack of confidence by investors in the economy or the companies affected.
To Dr Cullen that smacked of complacency.
While some of the reasons for the market's underperformance lay outside the stock exchange's control - such as inadequate household savings rates - others undoubtedly lay within the arrangements of the exchange itself, said Dr Cullen.
The main difficulty was the lack of a takeovers code to provide protection for minority shareholders, he said. The Government planned to introduce one this year.
The exchange opposes the move, arguing that companies have the option of adopting rules similar to the proposed code, but only a handful have done so.
"But that isn't the point," Dr Cullen said.
"The point is do those people who might otherwise be investing in the sharemarket, either from inside or outside [New Zealand] feel they are held back because of that lack of protection?"
He cited a Merrill Lynch survey last August of institutional investors.
They accounted for about 44 per cent of the institutional money invested in the New Zealand market and most of whom said New Zealand should adopt a takeovers code similar to Australia's or London's. Merrill Lynch concluded that a higher risk premium is imposed on New Zealand because of the lack of a takeovers code.
Mr Edgar said fund managers' major regulatory concern was not with the regulation of financial markets, but rather with the possible regulation of particular industries such as telecommunications or electricity.
Dr Cullen said the launch of the Government's telecommunications review had been followed immediately by the Telstra-Saturn deal and its plans for a $1 billion investment in new cable networks.
"They made it absolutely clear to me that was not a coincidence. If that is deterring investment, I wish we could do $1 billion worth of deterrence every day."
Mr Edgar said that with the financial sector largely overseas-owned and the agricultural sector still wedded to cooperatives, large parts of the economy were under-represented on the exchange's list.
He invited the Government to privatise New Zealand Post, TVNZ and the state-owned power companies.
"This is an offer we can refuse," said Dr Cullen.
"Each time one of those happens there's a temporary lift to the market and great excitement about the privatisation itself - often a level of over-excitement if one traces the curve of the share price - but it isn't a lasting effect. At the very best they are sort of steroid boosters."
Mr Edgar said small companies that were the engine of future growth and employment. The exchange planned to launch a new capital market next month to make it easier and cheaper for small companies to list.
Dr Cullen described the initiative as useful.
Exchange rules cop blame for bad show
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