KEY POINTS:
Over the past few years, the number of companies listed on the New Zealand Stock Exchange has decreased alarmingly. Many household names have disappeared, some the consequence of takeover, some the subject of private buy-outs, and even one, Ports of Auckland, returning to public ownership.
Now, another
sharemarket star, Fletcher Building, has been tipped as the next delisting. It has lost half its value in the past 12 months, making it ripe for takeover, possibly by an Australian company such as Boral. If this happens, it will be treading a well-worn path.
So common has the scenario become that it sometimes seems New Zealand is well on the way to becoming a branch office of Australia. As examined in today's Business Herald, that process has clear implications for the local stock exchange.
As the number of stocks dwindle, the prospect of it becoming a mere subset of the Australian Stock Exchange grows. That is not a welcome prospect. A thriving local bourse should be part of this country's economic palette, especially as a source of funding for expanding companies. Indeed, it should be serving that very purpose today, given a long period of economic buoyancy and the innovation and quest for best practice initiated by the exchange's chief executive, Mark Weldon.
Yet even though a platform for an improved level of public capital-raising and a surge in new listings was laid, the reverse has happened. This, in large part, has been a consequence of New Zealanders' investment habits.
An unhealthy emphasis on residential property has meant capital has been allocated not only non-productively but inefficiently in terms of the national economy. Compare this country with Australia where, even with private equity largely sidelined, compulsory superannuation continues to provide a funding pool to underpin corporate expansion, including takeovers here. Some of the outcomes are benign, but not all.
Control from Sydney may, for example, lead to the loss of local jobs in the interests of the wider company, even if a New Zealand subsidiary is performing well. And if the local exchange was effectively swallowed, the operations of local brokerages and support staff would inevitably be trimmed.
The Government has acknowledged the problem by setting up a taskforce. That should conclude the process is not yet irreversible. Certainly, there would be an immediate boost if Fonterra or other agricultural entities listed. And, in the longer term, KiwiSaver will help stimulate a savings culture and much improve the investment landscape.
But the ultimate solution lies in the creation of a shareholding democracy. The concept, much cultivated in Britain and Australia, sees mum-and-dad investors owning stakes in fully or partly privatised utility companies.
It has been tinkered with here, through Vector, Contact Energy and Auckland International Airport. But for no good reason it has not been pursued wholeheartedly. Now, the stock exchange's escalating plight should prompt its resuscitation.
National, ideologically, is the most likely of the major political parties to grasp the concept. John Key has promised no state asset sales in the first term of a National government. But that need not preclude the partial float of some state-owned utilities and operations such as coal mines and vehicle testing stations, which would be obliged to operate more efficiently and transparently.
New Zealanders have shown they have a thirst for the concept. That is unsurprising, given they gain steady income and long-term returns. At the same time, they help company expansion, job creation and economic growth. It is a win for both sides. It is also the best chance of buttressing the stock exchange and stopping this country truly becoming a branch office of Australia.
