Published On: Wed, Oct 27th, 2010

New Zealand Stockbroker Calls for ASX Alliance

One of New Zealand’s top stockbrokers says NZX must enter into an alliance with a merged Australia/Singapore stock exchange, even if it means the Wellington-based bourse may be taken over.

On Monday Singapore-based SGX announced an agreed A$8.4 billion ($11 billion) bid for Sydney-based ASX, a deal which would create the world’s fifth largest stock exchange.

Neil Craig, the executive director and founder of Craigs Investment Partners, which manages $5b in investments for 50,000 clients, said there was “some urgency” for NZX to strike a formal deal to tap into the liquidity offered by the regional hub that the merger would create.

While he stopped short of calling for a takeover, if an alliance meant NZX had to be owned across the Tasman, then talks should be entered into.

“That’s not an outcome that we should be scared of, but I’m not saying that it is the only possible outcome.”

The New Zealand capital market suffered from a lack of liquidity, Mr Craig said, reducing the valuations of shares and as a result, the value for companies trying to raise capital.

Although this had been the case for decades, the easing of capital flows around the world and electronic trading made accessing foreign capital pools possible.

A growing number of New Zealand corporates have listed shares on both sides of the Tasman.

However Mr Craig said, aside from the largest New Zealand companies, a dual listing failed to get the attention of the Australian business press or stockbrokers.

“The solution is not to be traded in both countries, it is to be embedded in a much more liquid market.”

NZX companies needed somehow to become a “subset” of the ASX, a structure which might allow it to remain independent.

With New Zealand already of only marginal interest to international investors, even in Australia, the situation could get worse without a deal.

“There is a risk of being even more marginalised if we don’t tap into what’s happening across the ditch.”

Mr Craig was a director on the New Zealand Stock Exchange when it held merger talks with ASX in 2001, which collapsed. Even then it was clear it was a “David and Goliath” situation and the negotiating position of the ASX would have only increased since, Mr Craig said.

On Monday, NZX chief executive Mark Weldon said there were no plans to approach Singapore in an attempt to join the deal, and the company would develop as a niche player focusing on agriculture.

Recently NZX launched a dairy derivatives platform.

Mr Craig said his firm was positive about the prospects for dairy derivatives but that NZX must focus on the listed companies.

“Yes, dairy derivatives, we are very positive on them, and it’s a necessary thing for our markets and the dairy industry, but in the short term it’s not going to be the make or break of the NZX.”

Shares in NZX rose 4 cents or 2.6 per cent to $1.59 yesterday.

Forsyth Barr analyst Guy Hallwright said although the ASX merger may cause the issues facing the New Zealand capital market to be discussed, the immediate implications for Wellington-based NZX appeared to be limited.

“There are certainly major issues there in terms of liquidity and capital raising, etcetera, as we all know, and it [the ASX merger] probably brings that into focus, but I don’t think it makes a huge amount of difference as to where NZX is at the moment.”

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