Most local financial services players would oppose any merger of the NZX with an offshore exchange, according to a new study published last week.
The NZ Institute of Economic Research (NZIER) report – commissioned by the NZX – found all of the market participants interviewed for the study favoured a “local exchange presence”.
Despite the acknowledged cost, technology and expanded product choice a bourse marriage would bring, the majority of respondents said the downsides outweighed any benefits.
“… most – but not all – participants did not think there would be a liquidity benefit from New Zealand being served by a larger, non-local exchange, and that it could in fact reduce liquidity, as New Zealand companies would stand out less and get less coverage on a larger exchange,” the NZIER report says.
If liquidity dries up for NZ listed firms buried in a global exchange potential negative consequences include a hollowing-out of the “local capital raising and funds management” industries.
The study says an increasingly irrelevant NZ equity sector could also see loss of tax revenue, less (and more expensive) access to capital for local firms, and lower corporate governance standards.
And even a merger with the ASX – which almost came off in 2001 – would result in poorer “diversification for savers compared to the status quo where they can allocate to New Zealand markets, Australian and other markets separately”, the NZIER report says.
‘The economic contribution of NZX’ report says the local exchange further opened up investment opportunities to the public via its expanded Smartshares suite of exchange-traded funds (ETFs).
“… the savings options that the NZX facilitates are at much lower cost, and offer much greater scope for diversification of risk, than normal direct investments in private businesses or property,” the report says.
“This is of vital importance in the context of the unbalanced nature of most New Zealand household balance sheets with their very high exposure to residential property, occupied or rented.
Moreover, the rules and the set-up for the NZX have, over time sought to reduce transaction costs.”
The NZX manages almost $2.2 billion in the Smartshares products, of which about two-thirds is sourced from its $35 million purchase, the funds management and KiwiSaver subsidiary, SuperLife. Last week new NZX head of funds management, Hugh Stevens, officially took up the role, replacing the outgoing Aaron Jenkins. SuperLife founder, Michael Chamberlain also left the NZX last December following the completion of his work-out clause leaving co-founder, Owen Nash, to help with the NZX funds management leadership transition for at least six months.
Commissioned to explore the “direct and indirect value to the New Zealand economy” of the local bourse, the NZIER report says the NZX features “a high level of foreign capital (36% at present)”.
All-up the NZX Main Board – which recently lost high-flyer Xero – features 159 listings with a collective market cap of $135 billion, the NZIER study says. The exchange interacts with 16 cash market participants, about 340 authorised financial advisers based in broker firms, 68 fund managers and over 193,300 investors.
“It also offers debt options via a strong precondition-based market, supporting 45 listed issuers with $27 billion market capitalisation, including KiwiSaver and two sovereign funds,” the report says. “Determining the precise number of workers supported by NZX is challenging, but we know that around 33,800 workers are employed in closely related sectors.”
The NZX is due to release its full-year results this morning with further updates expected on its ‘back to basics’ strategy announced by new CEO, Mark Peterson.