But this seeming anomaly goes to the heart of why stock markets exist – and that’s certainly not to provide regular returns to shareholders. The central function of any stock market is to provide equity capital to the wider economy, but nowadays many companies view it simply as a means to achieve liquidity for early-stage investors. Either way, things at the ASX seem to have gone awry.
Admittedly, with dividends reinvested, you would have still garnered an annualised rate of return of 4.45 per cent from Australia’s All Ordinaries index over the last 10 years, although the weighted capital valuation slipped 12.7 per cent. By contrast, Australia’s gross domestic product grew at an average rate of 2.47 per cent a year. The primary reason why valuations on the benchmark index are out of kilter with economic growth is that the country's equity market is essentially moribund, stagnant. The underlying make-up is largely unchanged from a decade ago; heavily weighted to both the resource and financial sectors and structurally inhibited by what Mr Haigh calls a “corporate structure that favours oligopolies in retailing and finance in what ultimately is a nation with a small population”.
You’re left with a group of tightly-held blue-chips with relatively modest, although predictable growth rates, operating in a market characterised by limited innovation and an inability to diversify beyond embedded industries. And yet there’s no shortage of home-grown capital. Australia’s pension funds are stuffed to the gunnels: at the end of last year, managed superannuation assets in the country were worth A$2.32 trillion (£1.37 trillion) in aggregate, according to the Association of Superannuation Funds of Australia. However, a large proportion of managed money in Australia has increasingly found its way into overseas securities markets, with the UK a prime beneficiary. With capital flows outbound, the incentives for companies looking to raise money via initial public offerings (IPOs) on the ASX are reduced, thereby perpetuating the cycle.
You would probably scoff at that scenario if you just considered the sheer number of admissions to the ASX, but look at what they generate and you’re left wondering about the calibre of those new listings. In what’s shaping up as the busiest year for global IPOs since 2007, the ASX has outstripped both the NYSE (52) and the London Main Market and AIM (50) with a total of 61 admissions through to the end of September. However, those IPOs raised just $1.1bn (£846m), a 65 per cent fall year-on-year, compared to $8.8bn for a London market constricted by political uncertainties, and a whopping $21.8bn for table-topping New York.
