Editorial: A capital idea

OPINION: Nine years ago, the Australian Securities Exchange proposed a merger with the New Zealand Stock Exchange.

The shareholders in the New Zealand exchange, which is a public company listed on its own exchange, rejected the proposal. Although the Australians tried to present the proposal as a merger, the New Zealand exchange saw it as a takeover. The exchange's board said at the time it was not convinced that New Zealand capital markets would be run by the Australian exchange in the long-term best interest of New Zealand and New Zealand companies.

The rejection apparently rankled with the Australians. A sign of this was given at the retirement last year of the chairman of the Australian exchange, Maurice Newman, who was in charge when the merger proposal was discussed. Newman blamed the failure of the merger on the New Zealand exchange's "provincial preoccupation with sovereignty" and cited the New Zealand exchange as a warning to Australia of the dangers of limiting the critical mass in its capital markets. This, Newman said, was the ultimate pathway to becoming "a poor branch economy".

The chief executive of the New Zealand exchange, Mark Weldon, bristled at these comments and attributed them to the Australian exchange's desire to shore up its dominant position against competition it was facing in its own markets. One of those competitors is a venture in which the New Zealand exchange is a participant.

All this rhetorical argy-bargy may be entertaining, but the idea of the two exchanges merging is one that will not go away. It was floated again this week by Dr Don Turkington. Speaking at a seminar in Sydney on how New Zealand might reverse the brain drain that lures many of the country's best and brightest to Australia and elsewhere, Turkington said flatly that the New Zealand exchange must join with Australia to get the economies of scale it needs to survive.

According to him New Zealand's exchanges have never developed properly since they began in the 1870s. Certainly the New Zealand market has been extraordinarily inert since before the recession began here, in advance of the rest of the world, at the beginning of last year. In the last two years there have been no new listings in New Zealand. On the Australian exchange, by contrast, 45 new listings were made in the year to June alone.

Turkington's views cannot easily be dismissed – he speaks with the authority of someone who was once executive director of a leading New Zealand stockbroker, Forsyth Barr. The thinness of New Zealand's capital markets have long been noticed as a drag on the economy. There are many reasons for New Zealand's decline relative to Australia over the last four decades, but if New Zealand is to have any hope of halting or making up the economic gap that has developed access to capital has to be improved.

Measures made recently to harmonise the New Zealand and Australian markets have improved matters to a degree, but more can be done. Anything that might help should be seriously considered and not simply greeted with another spasm of "provincial preoccupation with sovereignty".