Between the lines: Rod Oram

Go it alone folly that makes us easy prey

By ROD ORAM

A clash in the US Congress on Tuesday and the dreadful performance of the Belgian stock market ought to blow away the complacency of the New Zealand Stock Exchange - but probably will not.

The NZSE keeps reiterating its confidence that there is nothing much wrong with the market it runs. It says the only problem is the lack of exciting companies listed on it.

Undaunted, it believes it has a future as a standalone exchange, even though New Zealand shares account for just 0.2 per cent of the world's equities.

That is what Belgium thought, too. But look what is happening to its market. Its key index, the Bel 20, has fallen 18 per cent this year, making it by far the worst performer outside emerging markets such as Indonesia.

The Belgian market is ill, probably fatally, as the Economist concludes this week. It has almost no large companies left listed. The rest have been taken over by the French, or relocated to neighbouring countries.

Of the stocks in the Bel 20, only a couple are contenders for the dynamic new economy. The rest belong to the moribund old economy.

Price:earnings ratios of Belgian stocks are far lower than in neighbouring markets. Yet investors are still reluctant to buy because there is insufficient trading volume to make a liquid market. So disinvestment, particularly by foreign holders, is accelerating.

One of two fates is imminent for the Belgian market. Either it will be bought by the Paris or London exchange, or it will be part of a much debated eight-exchange European merger.

For Belgium, read New Zealand. For French predators read Australian. The NZSE40 has fallen a mere 9.5 per cent this year, but most of the dynamics apply as forcefully. For example, the Australian All-Ords index closed at a record high yesterday.

There is no better evidence of seismic stock market shifts than the bitter conflict in the US Congress on Tuesday.

Chief executives of the New York Stock Exchange, Nasdaq, big brokerage houses such as Merrill Lynch and other interested parties were called to give their first response to a radical proposal from the US Securities and Exchange Commission, the industry's regulator.

The SEC has suggested one US stock market be created from the gaggle of three national exchanges, six regional ones and nine electronic trading networks such as Reuters' Instinet.

The NYSE was adamantly opposed to amalgamation; the brokerage houses were all for it. The key issues are how to deliver the best price, lowest transaction cost and most cost-effective regulatory regime to keep the US securities industry competitive with those abroad.

The debate will churn on for months. Meanwhile, the NZSE sails on in arrogant isolation into the gathering storm.