NZX targets 'natural advantage' in primary industries with new index, dairy derivatives expansion
By Paul McBeth
April 13 (BusinessDesk) - NZX wants to capture New Zealand's "natural advantage" in the primary sector with a new index tracking listed industry players and build on the early success of its dairy derivatives market, says chief executive Mark Peterson.
The Wellington-based company is in the process of refocusing on its core market business to revive investor interest in the capital markets. Among those initiatives is a drive to capture New Zealand's comparative advantage in agriculture and horticulture, and Peterson told shareholders at today's annual meeting in Christchurch a new index will be launched in the second quarter including stocks such as a2 Milk Co, Fonterra Shareholders' Fund, Comvita, New Zealand King Salmon, Scales Corp, Sanford, and Seeka.
"This sector generates a significant portion of our country's wealth and our exchange is home to several high profile names," Peterson said in speech notes published on the NZX. "To give these companies the exposure they deserve we will launch a primary sector index in Q2 so that local and global investors can better track the performance of this growing part of the market."
NZX's new strategy consists of four parts: refocusing on the core market; pursuing growth in debt, dairy, environment and energy markets; expanding funds management and administration divisions; and operational efficiency.
Peterson said NZX's dairy derivatives market has already registering gains with active users up 60 percent last year and longer trading hours are on track to begin in July.
"This will provide more opportunities for European and Asian firms to participate in the market, which was previously closed for the majority of their trading day," he said.
The derivatives website is being redesigned to include Mandarin translation, and NZX is preparing to open a new Singapore office.
"The rapid growth of our dairy derivatives market represents a global opportunity for NZX as this market supports New Zealand's position as a global leader in the dairy industry," he said. "We are exploring the possibility of a global partnership that will help drive the market to scale and deliver a global benchmark product over a shorter timeframe."
Shareholders will vote on the election of former New York Federal Reserve FX committee member Nigel Babbage and BNY Mellon Investment Management executive Lindsay Wright to the board, and the re-election of Trade Me chief Jon Macdonald.
NZX chair James Miller said Babbage and Wright will help the board "accelerate the dairy derivatives market to global benchmark status and maximise the value of our Smartshares business."
Miller said the board is examining the use of a capital bond to shore up its balance sheet in "the unlikely cause of a major market event" with more details to come soon, and is in the second round of consultation on a mutualised default fund to improve its clearing house's risk model.
He acknowledged a "small group of shareholders" had challenged the board's strategy and wanted "more efficient ways to expand the scale and scope of our exchange". The accompanying presentation slide weighed up alliances and partnerships with other exchanges against a one-off merger.
"The board sympathise with their frustration and agree we must maximise the exchange's wealth," he said. "But we must remain disciplined and achieve our longer-term objectives within the legal and social framework under which the exchange operates."
NZX affirmed operating earnings guidance of between $28 million and $31 million in calendar 2018, compared to $29 million last year.
The shares were unchanged at $1.08 and have slipped 3.6 percent so far this year. The stock is rated a 'hold' by two analyst recommendations compiled by Reuters, with a median target price of $1.19.