KEY POINTS:
The head of the Stock Exchange acknowledges New Zealand's sharemarket is "fragile, in some senses," but says a merger with Australia's bourse would be like "hoisting a white flag" on New Zealand's autonomy.
The Government has called for a workshop on strengthening the sharemarket, which is being eroded by a flow of listed companies going overseas or being bought out.
Some of the NZX's top companies are either under due diligence or subject to takeover talk, including SkyCity and Auckland Airport. Number two listing Fletcher Building has said it is considering a move to Australia.
NZX CEO Mark Weldon agreed concern about the sharemarket's size was "real".
"I think New Zealand is reasonably fragile in some senses but I think were the New Zealand exchange to disappear, you really have completely hoisted the white flag and said we've got no hope."
He said the workshop was a Government initiative.
"All around the world, capital markets are important for broader economic growth and I think what you've got here shouldn't really surprise anyone.
"It's the Government saying 'we've done a lot of work on the regulation of capital markets but we haven't actually done anything on the growth of capital markets'."
In his view, Mr Weldon said the Government's lack of involvement in capital markets had been because there was no one Minister accountable for them. They currently came under the portfolios of the Ministers of Commerce, Economic Development and Finance.
If the exchange was to lose two or three big companies, "NZX as a company would be fine because we've managed to diversify our revenues...but the brokers who really employ the people who facilitate capital raising for companies start to struggle at a scale lower than we are today."
If the ASX was to buy the NZX, it would not be a merger, "it would be a takeover," Mr Weldon said.
"You would see the New Zealand market being run in the way you see the bank sector being run. It's a branch economy...You don't have a market, you don't have a banking sector. What have you really got at that point?
"If you can't raise money in your own country off a market that has rules that are right sized for your companies, that provides investment opportunities that are accessible and brokers that are local, you might as well forget about it. All the brokers would go to Sydney.
"The only way any company in New Zealand would make it big is to get bought."
Mr Weldon declined to talk about what issues might be discussed until after the meeting.
But NZPA understands hot topics could include whether the Government could help by listing or partially listing SOEs (state-owned enterprises) or their spinoffs.
Another issue which has been getting some currency from the National Party of late is private-public partnerships (PPPs) for longer-term infrastructure investments. These could issue bonds rather than raising money offshore.
Likewise, bond issues by local councils may be discussed.
Tax breaks might also crop up, possibly for the cost of floats on the stock exchange, and there might also be discussion about encouraging more immigrants with capital market expertise.
Economic Development Minister Trevor Mallard says recent changes like Kiwisaver and the PIE tax regime have already assisted capital markets.
The invitation-only workshop with corporate and capital market players is expected to be held later this year.
Mr Weldon agreed partial listings may well be part of the answer to the listings drought.
Partially listing SOEs "would be fantastic" . "...A lot of those SOEs should be raising capital to expand overseas with, quite frankly."
Some Australian-owned companies, including banks or those with New Zealand assets, might also do well out of partial listings, he said.
"Companies like Fairfax for example with Trade Me in their portfolio, were they to list a small percentage of that business, then that would be received unbelievably well."
He agreed that as New Zealand nears the 20th anniversary of "Black Monday," the 1987 stock market crash, its legacy continued.
"In the 80s, you had people put 100 per cent of their wealth into the stock market -- that's not healthy. And now you've got people with 100 per cent of their wealth in the housing market, and that's not healthy and you'll have the same outcome.
"The lesson wasn't 'don't invest in the stock market,' the lesson should have been, 'don't go nuts on any single asset class."
- NZPA
