Future for the NZX Stock Exchange

A look at the news that Singapore has bid for the Australian Exchange. Is it likely to succeed and if so what are the implications for Australia and New Zealand
Well - the bid by Singapore for the Australian Stock Exchange did come as a surprise. Having watched with interest over the years discussion round the future for the London Exchange I came to the view a while ago that institutions such as a stock exchange are seen by the country’s government and indeed I suspect by its citizens as a national virility symbol. Sticking with the UK experience for a moment, the UK has of course sold much of the family silver over the years and you could well ask why the stock exchange would be any different. In principal why would e.g. a combined german/UK exchange affect general business within the UK? Would it not in fact benefit companies from a more liquid and greater market. However, despite lots of talk the LSX has of course remained firmly UK based and ‘owned’, some might indeed also say free. This I think shows that it would not simply be another takeover. There are wider ramifications...

So, what is the future for the Australian Exchange. It is interesting to note that after the initial business comments round it being in broad terms; economically a good thing. The subsequent indications from the politicians in Australia has not been as positive. Indeed Austrian Treasurer Wayne Swan advised it would require “extensive regulatory considerations”... because the ASX was an important part of the nation’s financial system. Other reports say a takeover/merger would have to evidence it would be in Australia’s national interest. Such a takeover will in our view cause a real headache for Julia Gilliard’s fragile administration and as outlined from watching the UK, as things stand I think this is by no means a shoe-in deal.

For NZ how would such an event change things? Having been resident in Scotland for many years which has a robust and healthy fund and pension management business ,the lesson I take is that it does not have to mean that a local outlying financial sector need disappear. My observation is that NZ seems to see Australia, and Sydney in particular, in a similar vein to how the Scots see London - a case of the grass being both greener and there being a lot more of it but also happy that it is right on their doorstep. NZ’s financial sector like Scotland’s could still survive/thrive even with such a combined financial centre nearby, as the Scots have shown. Whilst Scotland does not have its own exchange in the same way that exists in NZ, I suspect many NZ companies will not want to see the exchange disappear and be left with one giant pond and them being relatively smaller - much smaller fish. The John Key administration has ambitions to see NZ develop into a financial back-office hub, perhaps an event like this will move the debate onwards and result in some more action on that point from the likes of the Capital Markets Development Taskforce. Indeed perhaps this event will see them rise to the challenge of how to develop NZ’s homegrown Financial Sector and Capital markets.