Kerr on the shrinking sharemarket

Roger Kerr writes:

Remember the claims about New Zealand’s “Wild West” sharemarket when the Labour Government came to office in 1999? It was languishing, so the story went, because of insufficient regulation.

New Zealanders lacked the confidence to invest in publicly listed companies. The story was always nonsense. …

Undeterred, the Labour-led Government brought in new, poor-quality regulation on takeovers, insider trading, information disclosure and much more. It was urged on by the Securities Commission, the NZX and others. The collapse of Enron and WorldCom gave a new impetus to regulation. In the United States, a key response was the Sarbanes-Oxley legislation.

This seems to be universally recognised as an over-reaction that damaged the New York market. Many of the proposals for new regulation in New Zealand were resisted by the business community and informed commentators. …

So did Labour’s policies of more regulation work?

In 1999, the total value of listed companies in New Zealand stood at around $55 billion. By 2008 it had shrunk in real terms (deflated by the CPI) to $31 billion.

As a percentage of GDP, it shrank from 51 per cent in 1999 to 22 per cent in 2008.

And the aim was to increase confidence in investing. But wait, did all countries have a decrease like this?

Although Australia’s market capitalisation has also fallen relative to GDP (from 105 per cent in 1999 to 82 per cent last year) with the recent decline in world sharemarkets (which of course also affected New Zealand), it has grown by 10 per cent in real terms since 1999. That compares with the 44 per cent decline of our market.

Guess not.

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