Wednesday, March 08, 2006

Fran O'Sullivan: Black mood takes hold of country too readily

For A man who professes not to enjoy putting his "head up over the parapet", NZX boss Mark Weldon is getting to be a tiger for punishment.

Weldon's profile is strengthening as he mounts a broad-brush campaign to talk New Zealanders out of their propensity for negativity. He can't understand why the business fraternity and the investing public lose confidence due to cyclical economic downturns.

News media and economists are too quick to scream "Downturn"; "Horror story"; "Recession" when negative figures present.

Weldon believes this is simply overreacting.

He points out that in the US - which has seen the ravages of September 11 terrorist attacks, the Iraq invasion, trade deficits, inflation and Hurricane Katrina - business does not slump to the same degree as New Zealand.

Businesses there continue to grow rather than fall prey to the type of fears prevalent in our own small economy, which admits defeat too early.

Weldon raises a good point.

It's ironic that New Zealanders - who do tend to go into national depression when the All Blacks suffer a major defeat - will kick the players all round the paddock if they also pack a sad when they lose a game.

But we don't expect our business players to demonstrate the same fighting spirit. Instead, we join them in their cavalcade of misery when the latest drop in confidence is registered.

It's difficult to see how Weldon's jaw-boning will have an effect in the short term.

The problem is that once a negative mindset becomes embedded, confidence tends to be chased down before it is restored. Those business people who think they are doing OK wonder what might be round the corner when the great bulk of them believe their company's fortunes will not be so bright.

Partly it's a chicken and egg thing.

People stop spending when confidence goes. Those businesses exposed to domestic consumers suffer. Exporters cut back when a high dollar erodes their profit margins. There is less money to go around within the local economy.

There is a discrepancy between how investors here perceive sharemarket value compared with those offshore.

But irrespective of Weldon's chivvying, the reality check makes itself felt pretty quickly.

Where the NZX boss is getting a bit of pushback is from journalists and brokers who are not so sure about the messages he is pumping out about their role in maintaining confidence.

Weldon has had quite a bit to say about the role of this country's business press, including the Business Herald, in relation to maintaining investor confidence. He's grumped about media playing up the controversial boardroom differences within Vector - instead of its strategies - at the time of its float.

He's had a whack at some brokers for panning the Goodman float in their pre-listing research analysis.

Weldon has chivvied journalists on what he sees as the need to be sure they maintain balanced reporting in a small market where local companies receive a lot more day-to-day coverage than they could expect within Australia for instance.

There's an element of truth to this, of course.

Major companies like Telecom for instance do get a lot of column inches. No other company comes close to it in size. There are few blue chips compared with 10 to 15 years ago.

But it's also true that if Telecom dominated the Australia market, it would also get plenty of media play there too - and it would by no means be adulatory.

Right now market perception is that Telecom will be penalised by the Government for its "failure" to drive aggressively enough to provide business with access to broadband of sufficient bandwidth and speed to underpin future growth.

Telecom boss Theresa Gattung could argue that the "market" has already factored in the Government's "intention" to somehow open access to its local loop - the stock price is already off some 50c since the Beehive jawboning began.

But astute analysts will point out that the company's failures across the Ditch are the real issue.

Sure journalists have a role but I'm not sure Weldon has got it right yet.

My inquiries suggest he is often too quick to take the side of the companies - not quite a cheerleader - on their home patch.

Any journalist who has worked both sides of the Tasman can attest to the reality that New Zealand company bosses tend to be fragile indeed when subject to even mildly penetrating (let alone incisive) questioning of their company strategies and results on their home patch.

See those same chief executives in action across the Ditch and it's a different matter.

Journalists are treated like skilled professionals. They are assumed to be in command of their stuff. There is less tendency to do a runner behind their backs to newspaper management when coverage is critical.

But, more to the point, the chief executives frequently put more information on the table in the first place in their offshore roadshows.

This is the area I would urge Weldon to put some focus on - chivvying chief executives about the lack of transparency that occurs here - before whacking the press.

Then there are the brokers.

Weldon is right about the old game that occurs where brokers sometimes issue relatively conservative forecasts before companies float. This is part of market massaging.

If the stock floats up well above listing price within just a few days, the stags can profit.

His exchange's "ticker tape" may not tell lies - but more than a few of our share prices do.

As in most things, value is in the eye of the beholder.

Share price volatility - even so-called cyclical rises and falls - do not necessarily reflect the underlying health of a listed company.

What drives on-market value in the short term is perception, not fundamental reality.

It is surely the role of independent broking analysts to dig beneath those perceptions and mine out the telling information that gets to what really affects underlying value and future prospects - not just puff the stock.

US stock analysts and financial journalists took a beating after the much-hyped tech stocks tanked at the end of the Dow's historic bull run of the 1990s.

Same thing happened here much earlier with the 1987 sharemarket crash.

Neither journalists nor analysts can do their job without exhibiting scepticism.

Where Weldon needs to turn his attention is to his backdoor.

Right now, he is having to fight off incursions by the NZX's "co-regulator" - the Securities Commission - which wants to inspect its supervisory processes at market and non-market levels.

Neither side is being particularly frank about the behind-scenes jostling which may yet end up in court.

Surely if Weldon wants us to lift our game, he should put more information on the table about his "co-regulator's" threat to his own business.

The NZX is a listed company after all.


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