And so the dream that Sydney would become the key Asian financial centre is now officially over. The decision by the ASX to recommend that our stock exchange be sold to Singapore passes the baton for that dream to the Singaporeans.
Why did we fail? Maybe it was always just a dream, but nevertheless many Australians put a lot of effort into realising it. Like the Singaporeans, we certainly had a wonderful capital base, but our major institutions did not want to invest in Asian stocks, and discouraged Australian companies from going to Asia. You can’t be a regional centre if your companies are not also regional. The malaise in NSW did not help. Talent left Sydney for other Australian centres, or more often for overseas.
Graeme Samuel and former Treasurer Peter Costello will disagree, but the cost of fostering competition in the local banking market meant that we did not produce a major bank, which a financial centre needs. For example, while we are host to a global miner, BHP (which is not based in Sydney), the Big Australian must obtain its finance from other world centres. Our banks are not large enough to lead major mining loan-raisings because competition issues prevented the mergers required to give them global clout.
Both Singapore and Sydney haven been caught by the swift rise of China, which has boosted the strength of Hong Kong and Shanghai. Other Chinese financial centres will emerge. So in some ways it makes sense for the two non-Chinese centres to come together.
But despite all the rhetoric, this is not a merger. The Singaporeans are acquiring the Australian Securities Exchange to keep their dream alive of being the key non-Chinese regional financial centre.
If it were a merger, Australians would be guaranteed either the CEO or chairman’s post in perpetuity, plus equal positions on the board.
I want to emphasis that this is a wonderful deal for the ASX as a company, and shareholders are going to achieve a price that they could never obtain on the Australian market in the medium term.
But that underlines another weakness of Australia as a regional finance centre – too many of our company valuations are based on local criteria rather than Asian value systems. The Singaporeans are therefore able to buy the ASX at what appears to us to be a high price, but using their higher price-to-earnings ratio it actually boosts Singapore’s earnings per share.
The Singapore Stock Exchange, with Singapore Telecom, is part of the so-called Singapore Inc, which plays a big role in the control of its companies. When Singapore Telecom acquired Optus, we saw a real chance of competition with Telstra. When Chris Anderson was CEO of Optus, that’s just what happened. But when he retired, Optus simply became a cash cow for Singapore Telecom to invest in Asia.
The ASX will fight hard to get this takeover through, and they have many friends among print media commentators. I wish them well. But I am not sure Australia is ready to end the dream. And if we are prepared to end the dream, would it be better if we linked to some of the Chinese financial centres so that we are closer to the source of the boom?
This article first appeared on Business Spectator
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