Brian Gaynor, Milford Asset Management executive director and long time business commentator, says the local sharemarket is the quietest he has seen it in 35 years and desperately needs a high profile new listing like the Warehouse and a new, young generation of entrepreneurs to bring companies to market.
Gaynor’s comments, in a Double Shot interview with interest.co.nz, come as new figures from sharemarket operator NZX show total trades down 13% in July from July 2009 to 44,021, the total value of July’s trades down 37% to NZ$1.45 billion and the daily average value traded down 34% to just NZ$66 million.
“This is my 35th year (following the New Zealand sharemarket) and I’ve never seen it so quiet,” Gaynor said.
“In terms of activity on the market, IPOs, interesting companies appearing on the horizon looking like they might list on the sharemarket, there just doesn’t seem to be much activity.”
On top of the that, the only action on the merger and acquisition front involves "distressed companies" New Zealand Farming Systems Uruguay and Affco, which are "more of a rescue operation for companies that haven’t performed well rather than anything very positive.”
Gaynor said when he talks to people during weekends very few are interested in the sharemarket, with those aged under 40 seemingly more interested in property. However, one of the reasons a vibrant sharemarket matters for New Zealand is as a source of exciting jobs for young people in new, exciting enterprises. Many of these people, having received taxpayer funded educations, were currently leaving for Australia to chase better job opportunities.
The latest Statistics New Zealand figures show the number of New Zealanders emigrating to Australia rose in the year to June, the second consecutive annualised increase, with a net permanent long-term outflow of 15,900.
Initial public offerings, Gaynor noted, had always been a major catalyst in encouraging interest in the sharemarket.There was currently a dearth of them with only Ecoya, backed by the 42 Below founders who took about 29% of the candle maker’s shares in a NZ$10 million float, and troubled property group DNZ, which is looking to raise up to NZ$45 million.
There was a reluctance from a lot of people, especially of his generation, to subject themselves to the scrutiny and higher standards of running a public company, Gaynor argued.
“(But) listing is a wonderful thing to do because you have to lift your game and you have to do things a little bit more differently and better than you do as a private company.”
Furthermore listing a company provides both capital to grow a business and a level of exposure to the public that can’t be reached by remaining private.
Although a second-term National led government might look at some partial floats of state owned enterprises, Gaynor suggested the sharemarket was already over reliant on formerly central or local government owned companies such as Telecom, Auckland International Airport and and Vector.
“We’re not creating enough companies ourselves through the private sector. We could get a temporary respite and the market would benefit from a Mighty River Power, Genesis or Meridian being listed,” said Gaynor.
“But really I think the upturn will come if we get more private enterprise created companies listed.”
Discount retailer The Warehouse, founded when Stephen Tindall opened the first store in Takapuna in 1982 and listed on the sharemarket in 1992, was the sort of company the sharemarket was crying out for.
“That was a very small company which when it was listed it was quite interesting,” said Gaynor. "You talked to people in the finance industry and they wouldn’t go near the Warehouse. It was considered to be the bottom of the barrel.”
“(But) within a year of being listed I bet you most of the wives of the businessmen in Remuera and Fendalton were going to the Warehouse and buying products from it.”
Where are the entrepreneurs?
What was needed was a new generation of entrepreneurs like in the early 1980s when the likes of Allan Hawkins and Craig Heatley emerged and listed companies, which encouraged others to follow suit.
Generations X and Y needed to take the lead.
“To me everything now really rests on people between the ages of 25 and 40 and what they’re going to do,” said Gaynor.
New Zealand offered “wonderful” opportunities given there was little competition in most areas. For example, if you’re an investment manager in Australia you face hundreds of competitors whereas New Zealand counterparts face few.
“So in actual fact the country that doesn’t have a lot of activity offers very good opportunities for those who have got energy and ambition.”
The dominant generation of the moment, however, wasn’t interested but things could change very quickly within two or three years if younger people step up to the plate.
“I’m hoping it will (change),” Gaynor added, “but I can’t give you the evidence of it.”
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