Warning NZX will become 'glorified creche' after Xero departure

Aaron Gilbert, an associate professor at AUT's business school has warned the NZX could become a "glorified creche" for the ASX. Photo/Supplied.

Xero's departure from the New Zealand share market is a "red flag" for the local exchange and could see it become a "glorified creche" for the Australian share market, experts are warning.

But NZX chief executive Mark Peterson says plenty of other companies have shown it is possible to grow while continuing to support a New Zealand shareholder base.

Xero announced on Thursday that it would stop trading on the NZX at the end of January and de-list on February 2 as the company consolidates its listing on the ASX.

Rod Drury, Xero chief executive, said move was about getting access to the larger Australian market and to a broader range of analyst and broker coverage as well as bigger investors.

He said the company was getting interest from all over the world from investors wanting to buy into the company.

Xero is one of the largest companies on the NZX and its departure is being seen as a big blow to the local exchange.

Sam Stubbs, chief executive of KiwiSaver provider Simplicity, said Xero's move was a red flag for the stock exchange and its role in New Zealand's capital markets.

"The decision appears entirely rational from Xero's point of view, but is a huge red flag for the stock exchange."

Stubbs said as a KiwiSaver manager, it raised the issue of the ongoing relevance of the New Zealand market as a place to invest.

"The irony here is that in spite of a rising tide of KiwiSaver savings that wants to invest locally, Xero has decided that the ASX is a better place to be.

"If ever there was a red flag for the stock exchange and its role in New Zealand capital markets, this is it."

Aaron Gilbert, associate professor at AUT's business school said research it had undertaken showed the NZX was becoming less important for dual NZX/ASX-listed companies and if companies saw more benefits in being on the ASX it could result in the NZX becoming a "glorified creche."

"The potential situation you get is that the NZX could become an informational satellite market for the ASX for dual listed companies."

"If that happens, then you get a situation similar to what you see with Xero where they see more upside on being listed in the ASX than the NZX.

"Long-term one potential outcome could be that the NZX becomes a glorified crèche for the ASX, providing an initial place to list, until a company gets enough size to list across the ditch and then overtime they would step out of the NZX completely."

NZX boss Mark Peterson said it remained disappointed that Xero had decided to leave the local market but there were a number of New Zealand companies that have achieved what appears to be Xero's objective, while maintaining an NZX listing.

"This shows that global growth can be achieved while continuing to support your New Zealand shareholder base.

"Good examples of these companies include A2 Milk, Fisher & Paykel Healthcare and SkyCity. In addition, companies like Mainfreight have managed to achieve significant global growth while only being listed on the NZX."

Peterson said the NZX was in the process of undergoing a fundamental reset.

It is due to present its five year strategy to the market on Thursday as part of its annual investor day briefing.

Peterson said the New Zealand market continued to perform well.

"The S&P/NZX 50 Index is up more than 18 per cent in 2017, excluding Xero it increased 14 per cent and the S&P/ASX 200 Index is up 4 per cent as at 31 October 2017."