Hey John Key and Bill English, are we going to have a sharemarket? If not, what's your plan B?

Hey John Key and Bill English, are we going to have a sharemarket? If not, what's your plan B?

By Gareth Vaughan

The Government ought to make an explicit statement of intent about whether it wants New Zealand to have healthy capital markets, according to JBWere strategist Bernard Doyle.

In a Double Shot interview with interest.co.nz discussing his submission - Savings and the Equity Market - to the Government's Savings Working Group, Doyle said because confidence was crucial for financial markets and New Zealand's sharemarket is in "structural decline", the Government ought to provide an explicit statement of intent.

"The Government of the day has to decide 'we’re going to have an equity market' or 'we’ll just let it wither away and we’ll do something else'," says Doyle.

"More than the how, it’s the are or aren’t we. To me it has to come at the public policy level because it is a public policy decision. It’s a real cornerstone strategic asset so we need a message from the Government that 'yes or no we intend to maintain and have a healthy capital market'."

"(Or) if we don’t we need to know plan B because plan B is how we’re going to nurture and grow a whole lot of businesses that it's the capital market’s job is to nurture and grow."

This, Doyle says, is the 'top level" question from which a whole range of other public policy questions flow. These include how do we treat overseas investment, is there a role for the New Zealand Superannuation Fund to play as a cornerstone investor to help keep the equity market supplied and to buy strategic assets such as airports and ports in the market for the long-term.

And the equity market is "clearly not succeeding" in its role of providing a vehicle for savings.

"It’s clearly not providing the role a healthy, vibrant equity market would play both on the business development side of the economy, which is really important, but also on the savings side," Doyle says.

"The feedback I would get uniformly from local investors, both small and large, is that the New Zealand equity market is no longer big or diverse or liquid enough to really service their desire to invest domestically and that says to me we’ve got a problem."

New Zealand sharemarket's value as a percentage of GDP sandwiched between Ireland's and Greece's

The sharemarket was "ceasing to be relevant to the economy" and therefore leaving a hole for what an equity market normally does in the economy. Doyle reckons measuring the NZX's market capitalisation as a percentage of Gross Domestic Product (GDP) is the clearest measure of whether a sharemarket is doing what it should be doing.

Based on this measure (see charts below) the sharemarket's valuation is the equivalent to just 29% of GDP, sandwiched between Ireland at 28% and Greece at 30% and way down on Australia's 114%.


Doyle said 30% was normally an "up or out" position.

"As part of the submission I tried to find the example of a healthy market at 30% of GDP. It quickly became obvious to me that you’re either in God’s waiting room – markets like Greece and Ireland that have had tremendous stress under them and they’re either on the way out or in their own sort of repair job, or the only other markets that tend to fall into this realm are emerging economies that are quickly rising as a share of GDP," says Doyle. "And that’s the Turkeys, or the Indonesias or some of the South American economies."

"It (30%) is not a self sustaining level. In any advanced economy the sharemarket should be (worth) between 70% and 130% of GDP, 30% is not sufficient."

The disappointing thing was that New Zealand didn't used to be too far behind Australia. Doyle says in late 1997 New Zealand had a market capitalisation to GDP ratio of 52%, not too far behind Australia’s 65%. Doyle estimates a self sustaining equity market needs to be worth a minimum of 50% of GDP.

"Australia has gone on and almost doubled (since the 1990s) and we’ve halved and that is the best indication of how the two paths have diverged. This is not merely a symptom of 'they’re bigger than us' because this is as a share of your economy. Because as a share of the economy it has reduced, it has halved."

Over the years takeovers and a lack of new listings have left the sharemarket playing a smaller and smaller role in the economy. This means liquidity declines, it becomes less interesting to investors so there are less inflows of money. Doyle argues the domestic equity market is now in a "well grooved downward progression."

Tipping point could be close

A tipping point scenario, whereby one of the biggest five listed companies was taken over or decided to shift its domicile, or primary listing, overseas would quickly have a "really negative spill over affect."

Although he doesn't expect the sharemarket to simply disappear in the short-term, Doyle says when a financial market or an economy gets into a downward spiral, it can quickly become self perpetuating.

"And when I look at the problem our equity market faces it’s one of those spirals."

Doyle argues that New Zealand hasn't been nationalistic enough when it comes to supporting its equity market and has historically had a public policy stance of being unsupportive towards domestic equities.

He gives the example of Fletcher Energy, which was sold to Shell and Apache Corporation for about NZ$4.8 billion during New Zealand's biggest corporate restructure, the break up of Fletcher Challenge, in 2000-01.  Doyle points out that at about the same time, Australia's Howard government blocked a takeover of Woodside Petroleum by Shell in a move that was panned by international investors, some of whom threatened to never invest in Australia again. At the time oil was trading at about US$28 a barrel. This week it rose above US$90 per barrel.

The "tragedy" says Doyle is that Fletcher Energy would now be worth more than twice our biggest listed company, which is Fletcher Building valued at about NZ$4.7 billion.

"What a market like ours needs is strategic oversight and what the Howard government did in Australia," says Doyle. "It’s interesting to me that Australia gets plaudits for all sorts of things, but it’s not mentioned much that they’re quite obviously self interested when they look at transactions like this."

Long-term view needed

The New Zealand sharemarket needed someone overseeing it to take a 20, 30, or even 50 year view.

"Fletcher Energy’s the obvious example of that but there’s others in the forestry sector as well. In New Zealand, one way or another, we’re really lacking that long-term investor because portfolio investors will always be lured by a 50% near term gain. And unless you’ve got a counterweight to big international trade buyers, whatever new supply comes along to our market (the) chances are we’ll probably lose it without some sort of strategic element, - either in our public policy or having someone like the Super Fund as a strategic investor."

Looking to potential solutions to turn around the country's equity market, Doyle maintains there's no single solution. That's why public policy intervention is required.

Things the Government could do include sell downs of State Owned Enterprises (SOEs) and helping and encouraging some of our the bigger unlisted companies - such as banks - to list on the sharemarket.

"A lot of the SOEs that could easily be in the listed sector are in the energy space – the electricity and generation space," Doyle notes.

"So if I’m the Government and I’ve got a quite strategic holding on my balance sheet but it’s quite narrowly focused, there’s a bunch of other assets in the sharemarket that I have no holding in. So why don’t I use some of the SOE funds to A) provide supply to the equity market, and B) from the proceeds of that I could recycle them into very broad cornerstone holdings in a number of important assets."

This is a "two birds with one stone" solution.

"You’re having zero impact on your net worth, you’re not putting any more drag on your fiscal position, and you’re really helping the capital market by providing supply but also protecting an existing pool of assets," says Doyle. "Whether it’s the Super Fund or someone else, it probably makes sense to have a conduit as a holding vehicle for some of those stakes."

'Kite flying' on KiwiSaver

He acknowledges some of his ideas are "a bit of kite flying." One example is his suggestion that the Government could investigate a discounted offering of SOE shares for KiwiSaver account holders. This could encourage KiwiSaver uptake and boost widespread acceptance of SOE listings.

"The sensible market led solution in New Zealand is probably for us not to have a capital market and my starting point is that’s not a very good one," says Doyle.

"So the idea of somehow integrating KiwiSaver into an appetite for owning high quality strategic assets, I thought could be good. We’ve got this 20 year old bugbear with privatisation. In many cases rightly. I think the way privatisations were done in the past weren’t good for our country, certainly domestic investors missed out on a lot."

"So whatever the Government does with their assets in the future, somehow it has to loop in mum and dad investors and I think KiwiSaver’s probably a great way of ensuring those investments are of a long-term nature which is exactly as they should be."

That said, Doyle says he's cautious about meddling with diversification and asset allocation.

"No solution should be that we are forcing or coercing people into narrowing their investments into a New Zealand centric portfolio. But there is plenty of scope to have a good exposure to New Zealand and a broad globally diversified investment portfolio."

Also see: Double Shot interview with Brian Gaynor - sharemarket quietest for 35 years.

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Invest in NZ equities...oh yeah and along comes a 'cullen' and it's goodgye to your share value...followed by ....a bunch of greedy directors in a major utility deciding they wanted to fill their pockets....and that's just two examples of why you should invest in NZ equities!.

So is our dear friend Mr Weldon part of the problem or part of the solution????


Not that he's alone. Developers advocates fall into the same category, and Reserve Bank Governors. And, at present, more than half the populace....

They'd do better if they were better informed...

I don't know if this is a reflection of Weldon as a professional, but I know a taxi driver that provided him with his services last year, and promptly advised his call centre that he would never take Weldon in his taxi again. He also learned subsequently that many other taxi drivers had similarly refused to take him. 

What on earth does he do to the taxi drivers?

I believe extremely rude, arrogant and condescending. A real superiority complex and doesn't feel the need to treat those below him with respect.  

I guess I can't say for sure, but the outcome speaks for itself.

Oh, one of them.   Contemptible, really.  But if he treats all service workers like that, I'll bet that every restaurant meal he gets is gobbed in by the staff.

Shame for someone who refuses to take public transport!

It's just bad marketing by businesses like JBWare and ironic Mr Doyle that you point the finger towards the government and their lack of ability to see the big picture when even your own employer - JBWare is not listed on the NZX stock exchange.

For example; if I buy a rental house with no loan, sure the house value will go up and down over time and maybe even after 10 years the capital value will diminish, but week in and week out the house will pay a predictable return. So I become a secured asset holder receiving a dividend.

On your other side Mr Doyle, if I buy shares in a business to the same value as the house I become an unsecured investor subject to the plague of share fluctuation and often there is no yearly dividend or at best the dividend is annualized profit and loss which doesn't amount to much.

The risk side of the equation against share ownership is just too great to make the investment comparable especially looking at the annualized ROI. Please Mr Doyle give me an example of share investment that in the last 12 months has actually paid out a 6% or more average dividend over the last 10 years.

Also while I do admit that gambling your equity in shares is good for financial investment companies, the economy  and that it may lead to profit for everyone involved, I also look at the companies them self who are prepared through finance companies to pay between 22 and 26% per annum to finance software/hardware upgrades (i.e. computer / telephone / manufacturing technology systems),  yet give their investors a meagerly return for the same unsecured investment dollars.

JB Were has Goldman Sachs as a minority owner , and the BNZ as a majority owner . Thus you can gain some exposure to Mr Doyle's employer by purchasing shares of GS on the NYSE , or the National Australia Bank ( owner of the BNZ ) on the ASX .

Bernard Doyle's point ( it seems to me ) that healthy economies have robust capital markets . As an example , he notes that in the past 15 years the Australian ASX has doubled as a % of that  nation's GDP , whereas in NZ the NZX has halved as a % of our GDP . 

Where do start up companies go to raise capital   if the NZX has low turn-over and  onerous fees levied  ? Do they stay privately owned , and grow slowly . Or do they jump the ditch and list in Australia , and  take their HQ and intellectual capital with them ?

A few old fogeys on the NZX pay handsome dividends , and always have . Check out Fletcher Building , Sky City Ent , Steel & Tube , Port of Tauranga , Cavalier , Hal-Glass , Michael Hill , CDL , Nuplex , Colonial Motor ...........

Brian says

"KiwiSaver has been a huge winner because it has delivered fantastic returns for individuals, mainly because of Government and employer contributions."

But nowhere does he consider the cost of that, and who is paying for it.  If the Government were not in deficit, KiwiSaver subsidies would be taking money from taxpayers and giving it to KiwiSaver members.  Since the Government is in deficit, KiwiSaver subsidies are borrowing money from future taxpayers and giving it to KiwiSaver members.   That's great for KiwiSaver members, no doubt about that, but is it really the best possible use for the money?


Kiwisaver members are merely getting back some of their own taxes , after channelling it through IRD , and regurgitating it back again  ; and  then  into the arms of a fund manager , who  takes an upfront fee , plus ongoing annual management fees . Then it's locked up until retirement , which is some time in the future , or beyond that , if a future government tinkers around with  it all . But we can trust them not to do that , can't we ?

Absolute winner , I reckon ! Wonder that they don't get Colin Meads to promote Kiwisaver . Solid as !

If liquidity is your problem why don't you join the ASE/Singapore merger and consolidate a little more with you neighbours ?

I thought that the NZX was cosying up to the SGX a few years ago but nothing came of it.

The NZX some strategic reasons for being and operational differentiation points.

We could talk about these at some length...

I reckon it's a great loss to us all that Roger Douglas sold state assets off so cheaply , rather than the government maintain a controlling stake in them . And then  to float the rest onto the NZX . ........... The benefit of raising cash to reduce government debt is being un-done by the current National government . And much of the silverware is now  in the hands of offshore consortiums .

So it was all a bloody great waste of time , really ......... May as well have just  sat on our hands , and got  fart burns on our fingers .

I think the old Govn assets were poorly managed and in-efficient..yes they were sold off cheap....but they were cleaned up....I think most of NZ voters see that they were sold too cheaply now, it would be a very foolish Govn that tries to sell the SOE's today....IMHO.


"(Or) if we don’t we need to know plan B because plan B is how we’re going to nurture and grow a whole lot of businesses that it's the capital market’s job is to nurture and grow."

Personally I doubt that the share market now supports businesses as its origins intended....its now focused as someone said on at most 20 weeks but 20 days is probable....not 20 months, or 20 years....that short term profit for institutions and investors is clearly damaging companies....

"And the equity market is "clearly not succeeding" in its role of providing a vehicle for savings."

Hello.....Mom and pops have no confidence they wont be ripped off when a hollowed out company loaded with debt gives poor returns after the institutional investors have cleaned it out.  On the other side there is no point in investing in vehicles to buy shares, the managers of these just rip you off, you have to do it yourself......

"So the idea of somehow integrating KiwiSaver into an appetite for owning high quality strategic assets, I thought could be good. We’ve got this 20 year old bugbear with privatisation. In many cases rightly. I think the way privatisations were done in the past weren’t good for our country, certainly domestic investors missed out on a lot."

"So whatever the Government does with their assets in the future, somehow it has to loop in mum and dad investors and I think KiwiSaver’s probably a great way of ensuring those investments are of a long-term nature which is exactly as they should be."

Yes................i want to buy shares in a company and hold them knowing the CEO is looking at the long term .....




...and it goes on and on over there, luckily we don't have that problem here - but a stable economy also with NZagriculture and...aehh... ohh yes tourism imported like so many other "things".


..and another positive - it is summer here :








So I should invest in the sharemarket to grow business so that this will grow NZ businesses and I may profit.

The problem is "show me the money" if Weldon has no impact then don't pay him, funny how some hard decisions are so easy to make, yet as a shareholder I am last in  line, if those with the power can't gow themarket then the prduct they are seling is not wanted. If you want asuccesfulcapital market treat the shareholders well, i.e.more upside than downside.

Otherwise I will invest in good wine, fast cars and my wife.

Just finished a Nanny Goat Pinot Nior, makes me feel good, and not a bad drop, unlike being a shareholder, too many people takig a cut, unlike the wine.






In theory the sharemarket acts to enable companies to raise capital and to provide a viable alternative investment arena for the Mom & Pop savers of NZ . ........ In reality , the NZX appears to be a plaything for Mark Weldon .

I reckon you're right to invest in NZ wines  ! ........ After that ,   if there's any moola left over , and you're sober enuff to be coherent , chat to your 'broker about investing  on the ASX , in  Australia .

You are right as the best money I made (late 90s, early 2's) was on the aussie market and the most fun.

Having trouble with the keyboard and hitting save twice.

I reckon Bernard rigs the site on weekends , to do that . Things are a tadge quiet . And he wants to keep the  " sponsers " happy that there's plenty of blog " hits " . ........... He gets spin-offs , such as hair-cuts and ties as freebies if things are going really  well ............. Which explains why  he's looking so dishevelled as of late ..... Sad . Very sad !

Cadbury is on the move ! New owner of the venerable UK  choccie manufacturer , Kraft ( USA ) plans to shift Cadder's HQ from dear old blighty , to Switzerland ! Bounders ... whatever do the Swiss know about chocolate , hur-rumph !!!

Apparently there's the little matter of an annual saving in 60 million pounds ( sterling , not kg of fat ! ) in tax . Ouch . 200 years of history , shifted because the UK government are gluttons for other people's/businesses munny .

And that is a salient lesson to NZ . It is not enuff to catch Australia . We need to surpass them !

We won't because we don't want to reward effort, we want to tax it, we make excuses. As opposed to saying how, we say why.


I reckon you're right . Which is why we sold up , and are heading to Oz . ....... And the proceeds from the house have already reaped a gain on the ASX . So many hundreds of companies to select from .

Any coincidence that the rennaisance of the ASX occurred after Paul Keating ( Our Lord & Master ) introduced the compulsory super scheme in 1992 ? Similar to the one that NZ had in 1974 , but ditched 10 months later , by Rob Muldoon!

So, in all likelihood the FMA will finally regulate the NZX out of existence, tax laws are being manipulated to kill domestic and commercial property markets so ... I guess we all either invest in some other country or dairy farms?

Well done to the politicians: you've stuffed it up yet again. (I wonder how the financial hub is coming along: oh, that's right, slowly ...