Australian companies are listing overseas, many global companies are choosing to remove their local listings and the size of the Australian stockmarket is falling. Those are but a few issues plaguing the Australian stockmarket.
According to Tony Osmond, head of corporate and investment banking in Australian and New Zealand for Citi, the All Ordinaries (IndexASX: XAO) (ASX: XAO) market cap has dropped to 0.9% of GDP from 1.2% 10 years ago, as the Australian Financial Review reported yesterday. Ranked the ninth-largest exchange in 2011, the ASX is now ranked 14th in the world.
Those aren't the only problems the ASX – managed and operated by ASX Limited (ASX: ASX) – faces. Here's but a small selection:
- We've recently seen a number of Chinese companies list on the exchange and almost immediately fall afoul of the corporate regulator. Unless the ASX can prove that it takes investors seriously and values its brand, the exchange operator needs to improve the quality of companies listing on the exchange or could face serious damage to its brand.
- The exchange allows companies to raise capital unfairly through placements to broker's and their own favoured clients, rather than treating all shareholders equally. The ASX may find that as Australian investors are able to invest overseas more easily, more and more funds are likely to head overseas to offshore exchanges. This is likely to gather pace as Australia's superannuation pool of $1.8 trillion grows to $7.6 trillion by 2033, according to Deloitte, far beyond the size of the ASX, which currently stands at $1.5 trillion and shrinking. Add in new brokers like Robinhood who are promising free trading on US and International exchanges, and the move could gather pace quite quickly.
- Companies can conduct private briefings for analysts and fund managers, without the public or the rest of its shareholders being able to receive the exact same information – as investors in Newcrest Mining Limited (ASX: NCM) found out in 2013. Many fund managers believe that meeting with management gives them an edge. If those meetings really reveal no non-public information, why do fund managers still see it as a competitive edge? Why can't companies provide an audio or video recording on their website?
- The big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corp (ASX: WBC) along with three large resource stocks dominate the market, representing more than a third of the entire market. That's 7 stocks versus more than 2,000. In fact, the top 10 stocks represent 45% of the market.
- More than 1,000 of those stocks are tiny companies, mostly resource and energy explorers or 'hopefuls' as they might be labelled. With market caps of less than $50 million, they are hardly going to attract major investment. Let's face it, very few are going to deliver a decent return on your investment and quite a number will head out backwards. Yes, some will be the Fortescue's of the future, but Foolish investors are hardly likely to go anywhere near them.
- Getting hold of historical data for ASX-listed companies is virtually impossible without access to high-cost data providers. Want to know what share price Commonwealth Bank listed at? Sorry, the ASX can't or won't give you that information. The ASX's new company pages are a welcome addition but are woefully lacking in information. Now, compare that to publicly available data for large US companies. Actually don't. There's no comparison.
- As we mentioned above, companies are choosing to list offshore, or abandon their ASX-dual listing. Twent-First Century Fox Inc delisted once it had completed its split with News Corp (ASX: NWS). recent reports suggest Westfield Corp Ltd (ASX: WFD) is planning to delist too.
Whilst everything might look rosy now, it seems clear that the ASX and the company that manages and operates the exchange, ASX Limited, need to take several steps now to avoid becoming a minor bit player. That doesn't mean there aren't opportunities of course, just that investors need to tread more carefully.
