KEY POINTS:
In a new feature, nzherald.co.nz puts your questions to New Zealand's leading business people, getting you the answers you need.
Since listing on the New Zealand stock exchange, shares in NZX Ltd have performed extremely well. What do you see as the future of NZX Ltd?
The future for the company, I think, is really, really exciting.
The exchange landscape is changing a lot around the world.
For small and medium-sized countries most exchanges are either hoping to get bought or running to the government to seek protection and I think that leads to a lot of opportunity to do things if you're small.
You try and go offshore and you try and do different things.
So we've started a company in Australia with five very large global banks - Citigroup, Merrill Lynch, Goldman Sachs, Macquarie and Commonwealth Bank - starting a trading platform to compete with the ASX.
So it's not like a full exchange, it's like a mini-exchange that does some of the things that NZX does and is quite exciting, because it's been not the first question which is 'what are you going to do in Australia'.
The first question people have always had is 'when is Australia going to buy you'.
So, it's quite fun and quite exciting and we think it will be quite rewarding to turn the tables like that.
Is the New Zealand Exchange one that might attract takeover attention from an international exchange?
I think in the international exchange market the first thing that will happen is the very large global players, say, New York, London, Euronext, Germany, Toyko, will all join together in some form of corporate structure.
But I think like most big, flashy, 'front page of the Wall Street Journal' mergers I think there will be a lot of destruction of shareholder value out of that and I think there will be a lot of CEO ego involved in doing those deals.
I think the real benefits from linking New York with Tokyo are really hard to see - you're going to have to run two computer systems; your national regulations are very, very different; the markets are open at different times of the day.
So the stuff all seems to make sense and sound quite sexy, but I think when you get to the details it's pretty hard.
I think that will happen first. I don't think it will be massively successful.
And then second, people will run around the world and start looking for smaller exchanges to buy and think they can get some scale out of.
People have made tentative enquiries before and I'm sure they'll make them again, but we've got better things to do that just get bought, quite frankly.
The New Zealand sharemarket is shrinking through company delistings - are you concerned by this?
The New Zealand sharemarket is really changing quite rapidly in terms of what it looks like and there are some positives and some negatives about that.
What the positives are is you have a tranche of new companies come on there.
So you would think about companies like Pumpkin Patch or Delegat's or Rakon and what they've got in common, as does Fisher and Paykel Healthcare for example, is their market is the rest of the world, not New Zealand.
Ten years ago the companies on the exchange, and even five years ago, were largely New Zealand companies doing business in New Zealand.
The ones on there now are moving more towards global growth type companies - so we're very, very positive about that shift and that migration.
The disappearance of, particularly larger, companies - companies like Carter Holt and Waste Management last year - is obviously a concern because you do need a certain amount of scale in your market for the international participants to continue to remain interested in participating in your country.
Yes, that is a concern. Is it permanent and is it something you worry about with a 10 or 20 year view?
You can probably say 'yes' and you can probably say 'no'.
If you said 'yes' you would believe private equity will buy a bunch of these companies and will sell them again, but it may not sell them back onto the New Zealand market it may sell them to a large US player for example, so they may disappear permanently.
If you said 'no, you're not worried about it', you would have to say that you were to believe the state owned enterprises - companies like Meridian and Mighty River and New Zealand Post, TV2 - would at some stage, in some form come partially to market, as would some of the large co-operatives.
So you would think it would be swings and round-a-bouts.
What do I really think? I think it's probably a bit of both.
I think there's some medium-term upside out of the second thing I just said and there's some downside out of takeovers.
What plans does the NZX have to attract new listings?
There are three things you try and do there.
One is make your rules as transparent as possible so everybody has confidence in what is going on and that there is no extra cost involved, and I think we've done a quite good job in that.
The cost of raising money on NZX was measured by PWC [accounting firm PriceWaterhouseCoopers] at 5.6 per cent.
The cost of raising money on the ASX was measured at over seven [per cent].
So that's pretty competitive and makes it quite cheap for companies to raise money.
The second thing you obviously have to do is manage all of the things around your market that make a market - your indexes, your technology, ecetera - so that you get the most people participate in your market.
And why that matters is because the more people participate, the more people have confidence in it, the higher the value of the stocks are on the market.
We've seen over the last three years we've seen something which is called the PE - the price/earnings multiple, which is just shorthand for 'on average is the stockmarket on a high or low point'.You also figure that out from the index.
But we've seen New Zealand move from the third or fourth quartile globally which basically meant New Zealand companies were really cheap.
Therefore cheap to buy and therefore if you were thinking about selling your company or listing it, you might not list it because you might not get that much money back when you did list it.
But now we're in the second quartile or maybe the first, and our valuations are pretty strong.
So if you're a technology company that wants to sell 20 per cent of your stock and raise money for growth, we are actually really good and it's a really attractive value proposition.
That's the second thing you do, you've got to do is make sure your market settings are such that companies are valued as high as they can be.
And the third is good old fashioned and extraordinarily hard to execute - and I don't know if we're doing a good job at it - marketing the market. We'll see how that goes.
How damaging was last year's Feltex debacle to investor confidence?
The continual and legitimate media coverage it - certainly not criticising the media in any respect for their coverage of what was going on there - was for quite a number of months was quite damaging to retail participation.
We did see a number transactions - which is probably the most honest indication of if people are playing or not - we did see those tail off quite acutely over the period of time that was happening.
We were a little bit worried about that. It also came at the same stage, by the way, that those three finance companies failed.
Now that's got nothing to do with the stock market - that's people putting their money into something that's the opposite of the stock market actually - it's opaque and confusing and there's no information.
But those companies failed very much at the same time, so we just generally sensed that retail investors weren't really doing anything - finance companies, stock market, you name it.
But what you've seen over the last four or five months, you've seen the index hit all time highs, you've seen trading return, you've seen retail investors really return and that feels to be very, very, very much actually in the past.
I think one of the tragedies of the Feltex story was this assumed link between the stuff that was going on at board level - who was going to buy them, and who wasn't going to buy them, and what the receiver going to do and all this corporate intrigue - and it became almost so that people thought that was what was causing the business failure.
The reality of that company is they just didn't do a good job selling carpets.
Sure there was a bunch of messy things and they were heavily scrutinised those messy things, but those messy things were probably not what made the business fail.
What made the business get into that situation in the first place was they didn't sell enough carpet. Their business didn't work.
Investors shouldn't think that all companies will succeed and they shouldn't think that all company failures are due to mis-deeds or a lack of attention on the board.
Sometimes that stuff unfortunately does happen.
Are you concerned about raising the ire of the ASX through your ECN venture?
Look the ASX is a very well run company and we have a lot of respect for them and I think for the first time they are probably now looking at us as a legitimate competitor and as someone they need to pay attention to.
I would be shocked if they had have paid us any attention at all other than thinking as to when they were going to buy us.
I think we've signalled very clearly that we are going to compete with them.
Personally, I have a background in competitive swimming and I think competition is healthy and I hope they try and compete with us because I think that is good.
If we are in a real competition we'll get better at what we do and we'll provide more value into the New Zealand market.
I hope that's the case actually. I'm certainly not afraid of it.
What floats are you expecting in 2007, or, do you have a prediction of the number of companies looking to list?
Really interesting. The number of companies looking to list and the number of companies that actually float are probably two very different numbers.
It sort of goes like this: company looks to list, gets a reasonable long way down the process and then they, because they're going through a listing process, attract attention from private equity.
So we saw last year a number of companies get quite close to listing - they filed their applications - and then before they listed they actually got sold.
So that was a trend not one we looked upon with a whole lot of good humour actually.
But look, this year we would be very positive around a couple of things.
Actually, if I stretch it out two years because some companies can execute a listing in three to six months, so take nine to twelve - it depends on when their financial year ends and their audit cycle and that kind of stuff.
If I would look the next two years my estimate is that double the amount of companies will list as in the previous two years.
Whether that all happens in this year or not - it may get a little bit backloaded into 2008.
But from the conversations we had in the last half of 2006 - companies that are coming to see us, companies that are talking to brokers and bankers and the feedback we get from the bankers - the market will be very healthy over the next couple of years for equity listings.
I can't guarantee it will all be in 2007, but I think it will be very healthy.
A question from a reader who invested in the 80's: "I invested in the 1980's and lost the lot in the sharemarket crash. After getting my head above water again, I've stuck to property investments and made a fortune. Why would I want to put my money in the sharemarket again?"
Look that's an important question and I think you would answer that in three ways.
The first is to say, congratulations and thrilled that you've generated good wealth and good outcomes out of the property market and have probably developed some expertise there.
So well done on that and there is nothing we would ever say against people making those type of investment decisions.
The second thing you would say is, however, it's unhealthy to spend every night of your life eating pizza and eating fried chicken.
You know, it's ok occasionally but if it's all you do it ends up unhealthy.
And that's true whether you've got all your money in stocks or whether you've got all your money in property.
It is just a fundamentally unhealthy and fundamentally extremely high risk scenario to have all your money in one asset.
And that is absolutely true when it comes to property.
If you have all your money in the property market you are tremendously exposed to volatility in that market.
While we've had a five or six year run and it's been good, people have short memories around property.
One of my best friends in the US when I lived up there for example, bought an apartment in New York in 1991 and only last year did it get back to 1991 values.
So even though the market up there, as here, has been on a run, property is a very, very volatile asset and a number of things can change it.
Immigration can change it, the exchange rate and interest rates can change it.
If someone's been investing in coastal property and the regulations around DoC land changes and a lot more property becomes available, those prices collapse.
Absolutely, I certainly wouldn't advocate you sell all your property and put into stocks and bonds.
But diversification and having a balance makes sense.
The third thing is - and I don't know if the reader is making money buying and selling things or by investment properties - but a large number of New Zealander's major asset is property that they don't generate income from.
Particularly if you think about heading to retirement you, out of stocks - and I give a real plug for the New Zealand market here, it's the highest dividend paying market in the world.
The top ten stocks pay about 7 per cent dividend and the top 50 pay about 6 per cent. That's a pretty healthy return.
So if you're a long-run investor and you believe that over the long-run the stock market goes up - and that is true, companies are worth more over the long-run - you'll make your six or seven per cent a year and then you get the ability to sell things when their value's improved.
So you would think there are sound and healthy reasons for holding a balance, and sound and healthy income reasons for holding some of that in stocks.
What should the government do to increase sharemarket listings?
I think you only have to look at Australia to see the real benefit of sound, long-term economic policy.
The policy is not driven towards - and certainly the New Zealand government policy shouldn't be driven towards just generating listings.
But what a listing does do is cement a company in the country and that's important because you keep the head office there, you keep the top jobs, you keep the top people, you keep the tax base, you keep the talent.
For a small economy like New Zealand having those things is important.
So a listing matters from that perspective.
But more broadly, a listing matters because it's a way that companies raise capital for growth and if you look at New Zealand's current account problems, most of those are because we don't have enough companies generating income overseas.
As the policies - and they would generally be tax policies or more particularly, savings policies - create a financial system, like you have in Australia, where listing is a much more widely accepted, option where there is a much wider range of investors in the market, those companies will raise money and go overseas and make investments and the money will flow back to New Zealand.
There has been a real paradigm shift from last century to this century about what will make a country work economically.
In the last century - a very, very broad generalisation - it was about production.
General Motors, manufacturing - they used to say 'what's good for GM is good for America' and that's all about manufacturing.
In New Zealand it was all about farming and the Manufacturers Federation.
Going forward, with the billions of people in both China and India respectively and the billions more in Africa, production will happen where it can occur most cheaply.
Those economies are increasingly integrated and their technology is increasingly world-class.
They can produce world-class products like the iPod, which is generally made in China, not made in America.
So the wealth from the iPod all flows back to the United States because that's where Apple is owned, but the manufacturing happens in China.
For a country to do really well you actually have to have ownership because wealth and a standard of living will result from owning companies, it won't result from a place where manufacturing occurs.
Policies that encourage the market to grow will encourage companies to grow here and that creates a very, very virtuous circle, which you're seeing in Australia and that's largely the result of one single thing, and that is compulsory superannuation.
Nine and a half cents every day out of every person's wages goes into superannuation and that promotes savings and it promotes investment, and that's what we need here.
Have you ever considered a political career?
Well I can unequivocally tell you, in direct contradiction to an NBR front page article last year, no one in New Zealand has ever asked me if I would ever be interested in joining a political party or going into politics.
I think that would give you some idea that the parties out there think I wouldn't be any good at it.
Look I think, I am in a public role. The stock exchange, while it's a company, is also a company with a lot of public obligations and I interact with a whole bunch of politicians and I've certainly thought at times I would like to get engaged and you'd like to have more influence on policy - the stuff we were just talking about, superannuation and those thing - but, no, I've never seriously thought about leaving what I do now and going into politics.
That's a very different business. But people generally assume that I've been asked - I don't know why that is.
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Mark Weldon became the New Zealand stock exchange head in early 2002 after nearly a decade studying and working in New York.
Since then the exchange has re-branded as the NZX and become a publicly listed company.
Last year saw the sharemarket benchmark index, the NZX 50, pass through the 4000 mark for the first time late in December.
However, 2006 also had Carter Holt Harvey, Waste Management, Gulliver's Travels and 42 Below de-list following takeovers, wiping $5 billion off the market's capitalisation.
Weldon graduated from Auckland University with a first class honours degree in economics and a bachelor of commerce before completing a doctorate in jurisprudence at the Columbia University School of Law in New York.
