This was published 8 years ago
Citi's Tony Osmond says conservative boards are helping shrink ASX
By Shaun Drummond
The Australian sharemarket has shrunk over the past decade and is in danger of becoming a specialist exchange with decreasing liquidity, because boards have yet to regain their "mojo" since the financial crisis and take risk, a senior investment banker says.
Tony Osmond, Citi's head of corporate and investment banking in Australia and New Zealand, said the Australian bourse was now a "capital return" exchange, not a "capital raising" exchange.
Citigroup head of corporate and investment banking Tony Osmond wants Australian boards to have the courage to take risks.Credit: Daniel Munoz
Mr Osmond told a conference in Sydney on Wednesday that the All Ordinaries market capitalisation had fallen to 0.9 per cent of gross domestic product from 1.2 per cent 10 years ago.
By comparison, the combined New York Stock Exchange and Nasdaq was now 1.9 times GDP, compared to about 1.6 times a decade ago. The New Zealand stock exchange is only 0.4 times its GDP, roughly the same as it was 10 years ago.
Mr Osmond put this down to delistings outstripping new listings over that period, a relatively low level of capital raisings, which he linked to a low level of outbound acquisitions by Australian companies, and fund managers intent on short-term returns for shareholders.
"In the US there has been a rapid expansion – a lot of that is driven by increased risk taking, and a risk-taking culture. Also the boom in technology stocks," he told the meeting of chief financial officer organisation the Group of 100.
Australian shareholders focused on getting their money back, rather than reinvesting it, he said. That had thwarted a recovery in outbound mergers and acquisitions since the global downturn, which had caused boards to be risk averse.
Conservativeness
"There has been a loss of mojo in Australian boards. There is a conservativeness compared to what we see in the US, but also the short-termism of our funds management industry in Australia," he said.
"There are 148 fund managers in Australia. They are all competing for super funds and they are assessed on their quarterly performance and will be hard for corporate Australia to push against it."
His analysis shows shareholders have taken more out of the exchange than they have invested in it. Capital returns and delistings combined amounted to about $790 billion over 10 years, while investment in the form of equity raisings and new IPO investments amounted to almost $200 billion.
There were 107 IPOs in 2014-15, an 82 per cent rise on the previous year. The amount of new capital raised was $127.7 billion, up more than 179 per cent. Secondary raisings were at $38 billion, up 5.2 per cent. In 2010, there was about $75 billion in new capital raised on the ASX. Secondary raisings were particularly low that year because about $80 billion was raised in 2009, after the debt markets shut during the financial crisis.
Mr Osmond said it was unlikely the ASX would become as small as the NZX compared to its economy, because of the fast-growing pile of superannuation money – at $1.9 trillion now. But it was looking increasingly like the Toronto Stock Exchange, with mainly resource and finance stocks.
Companies that were not in those sectors would have to go elsewhere to raise funds and investors would too, to find enough liquidity or an optimum price and secondary market, he said.
"If you're an investor, you are going to put your money where it is most liquid and that is the real danger for Australia."