04/11/2010 - 00:00

Merged bourses could attract new capital

04/11/2010 - 00:00

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Emotion needs to be taken out of the debate over a possible merger between the ASX and Singapore’s bourse.

THE xenophobic reaction of those in the fringe areas of our political class to the proposed takeover of the ASX by its smaller Singaporean counterpart is very unhelpful when it comes to getting some rational debate on this issue.

The ASX has played a powerful role in the development of Australia’s economy. That is particularly the case with respect to mining and energy, which are helping Western Australia assert itself as an important player in the nation’s future.

The ASX has helped capital flow to where it is needed. As demand from China has risen, capital to fund the discovery, development and production of key commodities has come largely via the stock market.

Obviously this has much to do with Australia being home to such resources, but it is also worth noting that the ASX also lists many resources companies which don’t have any prospects of mining in this country.

Clearly there are advantages to listing a mining company in Australia where the costs, both in dollar terms and the regulatory sense, are outweighed by the capital access, market knowledge and its transparency.

Some recent figures produced by the Committee for Perth show this.

Perth is home to 41 per cent of the nation’s listed companies, compared to Sydney at 29 per cent and Melbourne 17 per cent. While this is based on volume rather than market capitalisation, WA is also closing the gap in that regard.

Furthermore, the presence of numerous small resources companies attracts many other unlisted miners, professionals and mining services providers.

Perth is also home to half of the 220 energy related mining companies, a growing part of the listed sector. Most of the 110 local companies are involved in oil, gas and uranium, rather than coal, which dominates the east coast energy players.

As the home to this majority of resources-related listed companies, therefore, WA has a big stake in the outcome of the SGX offer for the ASX.

But rather than a reflex negative response, the mining sector needs to understand what makes the ASX work for them and ensure that, if a merger takes place, the best elements are preserved.

They also need to highlight what additional opportunities there are for their sector, and pitch for them to be included in the way the merged ASX-SGX was to operate.

In other words, this is a great opportunity if handled well.

In recent times, rival stock exchanges have sought to coax Australian companies to their bourses. Most active have been Canadian and UK exchanges.

But the global financial crisis has hurt those markets more than our own. I have heard stories of Canadian miners coming here to seek capital in recent times.

And Asia is a growing source of capital for the future. We have already seen Chinese demand for our minerals reflected in a surge of direct investment. Being better able to tap into that could be a good thing.

So long as transparency is maintained, an expanded access to Asian capital might water down our resources sector’s exposure to capital from future clients.

Stock exchanges are valuable tools, but it is the capital they provide and the regulatory framework within which they operate which make them so.

Just who clips the ticket is not that important. The ASX is very profitable but the amount it earns is not a bounty for the nation. If we export part of those profits in order to gain access to bigger capital markets, while at the same time preserving the best of our current system, then that would have been a good trade.

Home competition

THOSE numbers quoted above are from two useful reports from the Committee for Perth, which look at the global competitiveness of Perth and its rise as an energy city.

One of those reports looks at Perth in comparison to other major cities around the world that also have a strong resources focus, namely Brisbane, Houston, Denver and Calgary.

This is the kind of urban population comparison raised by researcher Richard Florida, whose work focused on the rise of the creative class and how successful cities of the future had to attract these people.

While looking at the benefits of such a strategic advantage, the report also shows Perth and Brisbane lag their rivals in several key ways, including the education level of its population.

In another area of comparison, liveability, Perth ranks quite well, although it doesn’t stand out against rival cities such as Calgary.

But one area not assessed was that of housing affordability.

We all know that the resources boom has accelerated the rise of property prices to the point we, in Perth, face costs that are close to Sydney. But it’s not the boom alone that created the problem. Even places like Melbourne, which has scant mineral or oil wealth, has a relatively high cost of housing.

That is due to the way all Australian cities, via state and local governments, thwart development via taxes and regulations that work against cities sprawling like they do in many parts of the world.

This disease is not just a problem here, it exists in Canada and the US too.

I recall writing about the cost of opposing sprawl a few years back and the major city highlighted for its housing affordability was Houston.

Now I have heard that Houston is far removed from the pleasant and uncongested Perth, so it is with a note of caution that I raise this issue. In terms of liveability it is quite lowly ranked compared to Perth in the studies reviewed by the Committee for Perth researchers.

Nevertheless, housing affordability is a big issue for us when we consider our competitiveness. Already we are seeing key design and manufacturing work related to LNG development conducted offshore. This will only continue if we can’t attract workers here and become more competitive.

Although it is not the only barrier, the impending skills and labour shortages we face won’t be fixed if housing remains unaffordable.

That is a big risk to our competitiveness, even among that special class of resources cities.

• mark.pownall@wabn.com.au

 

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