Merging of markets may be bad for small players

WELLINGTON - Smaller companies and companies coming to the market to raise capital would be the biggest losers if the Australia and New Zealand stock exchanges were to merge, says NZSE chairman Eion Edgar.

"The bigger the exchange the less likely those small people will be looked after," Mr Edgar told a media briefing yesterday. The NZSE plans to launch a "New Capital Market" next month to make it easier and cheaper for small companies to list.

NZSE managing director Bill Foster said: "In terms of transaction processing we already have one [transtasman] market. People can buy Australian stocks now and we cooperate extensively in standardising the transaction processes."

But New Zealand had a different mix of laws and self-regulation from Australia. The effect, Mr Foster insisted, was a well-regulated market. "The end result is the same for an international investor."

But the different regulatory environment remained an impediment to a merger.

Mr Foster said the Australian exchange's costs were twice as high, when adjusted for the different sizes of the two markets.

"I'm sure our members would love to have their charges double, but is that the best thing? People don't appreciate how efficient and low-cost the New Zealand market is," Mr Foster said.

Although the market is small - its $54 billion market capitalisation at the end of 1999 represented just 0.2 per cent of world market cap - its liquidity was "not bad," Mr Foster said. Turnover as a percentage of market capitalisation was 48 per cent last year.

But the number of New Zealand companies listed has been fairly static for the past five or six years, a trickle of new listings barely offsetting the companies taken over or taken private.

Mr Edgar said it was disappointing that the previous Government had slowed the pace of privatisation of state-owned assets and the new Government was opposed to them altogether. But he hoped that dairy shares would eventually come to the market.

Another sector under-represented in the sharemarket is technology companies. The Capital Market initiative, although aimed at small companies generally, should help repair that omission.

After a strong rise in 1998, market activity flattened out last year, with turnover down slightly to $26 billion and the number of trades up slightly to 648,000.

Mr Foster said the market had suffered in the latter part of the year from overseas investors pulling out. "They were taking a hit on the currency. There was political uncertainty and the current account problems meant overseas investors have seen us as relatively high-risk compared with the growth opportunities in Asia and some other places."

Mr Edgar said there might have been a slight swing back in overseas investor sentiment, but it was early days.

"Until there is certainty about the telecommunications and energy sectors a lot of offshore investors will just bide their time," he said, referring to forthcoming Government reviews of those sectors.

While about 60 per cent of the New Zealand market is overseas-owned, Mr Edgar thinks about 40 per cent of New Zealand's investment in equities, directly and through institutions, goes overseas.

It had crept up in the past few years, he said, but had not changed materially. "New Zealanders have always been big investors in Australia."

Despite perceptions that New Zealanders were unenthusiastic about share investment, a study by the Australian Stock Exchange had found that 31 per cent of New Zealand households owned shares directly, Mr Edgar said. When indirect holdings via managed funds and superannuation schemes were included, the ratio rose to 45 per cent.

Included in the exchange's programme this year are moves to open up internet share trading. Because of the need to guarantee payment such trades would still have to go through a broker.

Mr Foster said brokerage margins, long under competitive pressure, would go down further still with the advent of low-cost technology and internet broking.