I had the pleasure of meeting with Ramy Aziz (Chief Financial Officer) and David Raper (Executive General Manager, Trading Services) at the Australian Securities Exchange (ASX). I believe I made the mistake of calling it the “stock” exchange when I first arrived because I’m accustomed to the NYSE, NASDAQ, AMEX, etc. In my conversation with Ramy and David, they noted that the ASX is vertically integrated and sits across all asset classes in Australia. The ASX is involved in the full life-cycle of a public security, from the beginning to the end. They noted that in the United States, the exchanges are more specialized, usually focusing on just one segment of the market, such as equities, commodities, futures, etc. The “S” in ASX did originally stand for “stock,” and equities were the focus of the exchange. A series of mergers have positioned ASX to be the leading Australian exchange… and it appears they’re really the only game in town. They commented the ASX is appropriate to the size and scale of the Australian securities market.
The Super Fund once again surfaced as a topic of discussion in my meeting at ASX. They noted that the significant and steady flow of capital into the markets as a result of the Super Fund have really supercharged the investment climate. They also commented that this inflow of capital is really becoming a problem because it represents “too many dollars chasing too few options.” They believe this “super fund effect” is pushing the prices of securities higher than they might otherwise be without this somewhat artificial demand. The favorable tax incentives related to the super fund is yet another accelerant on the investment fire in Australia.
Ramy spent a few minutes talking about the “two speed economy” in Australia. The two speeds are: 1) mining, and 2) everything else! The “everything else” in this case are sectors such as education, agriculture, healthcare, and tourism. The Australia economy seems to move back and forth between these two speeds. With mining slowing in conjunction with a slowing China, Australia’s economy is shifting into that second speed and education, agriculture, and healthcare are again moving to the forefront.
Speaking of education, Ramy and David noted that education is a major export of Australia. Huge numbers of students come to Australia from all over the globe, but especially from Asia, to pursue their education. This exposure to the good life in Australia creates follow-on issues for once students who progress to formally immigrate to Australia.
I was interested to learn about the concentration of public companies in Australia. Ramy and David noted that just seven companies represent two-thirds of the total market capitalization of public equities in Australia. These seven companies include 4 banks, 2 mining companies, and 1 telecommunications firm. I heard the Australian economy described as “banks and dirt.” Given the focus on housing, lending, and mining, that descriptions certainly seems appropriate. This concentration of just a handful of companies representing such a huge portion of the overall value of the Australian markets was an important take-away for me. Investors in Australia should understand these 7 companies and recognize that such concentration represents a unique set of potential challenges and opportunities.
We wrapped up with Ramy and David walking me down to the location at the exchange where newly listed companies may ring the opening bell and witness their IPO on the first trading day. Despite the fact that I didn’t have an IPO just ready and waiting, Ramy insisted that I ring the bell just the same. I’m pleased to report that I suppressed the temptation to just go start ringing away. Instead, I was very professional, polite, and rang the bell just once. My mother would be proud of my restraint.
Special thanks to Brennan Staheli, Devin Lindley, and the Lunt Capital team for their contributions to this report.