Australian equity capital markets could be better used to generate wealth and opportunities for all

01 JULY 2024

The role of public equity markets in bringing Australian businesses from startup to major economic contributors is not working as effectively as it could, suggests AUSIEX.

While there is increasing investor interest in private markets, listed public capital markets remain the primary forum to raise capital, provide liquidity and price transparency for companies and investors, notes the nation’s leading wholesale listed markets trading platform.

“One measure of whether equity capital markets are performing this role effectively is whether public company listings are growing in line with the growth in company and capital formation,” says Patrick Salis, CEO of AUSIEX.

“ASIC figures show Australians are starting new companies at a solid clip of 4.5% new registrations a year. Yet, the number of companies listing on public markets is falling. In the five years to 2023, there are just over 160 fewer publicly listed companies compared with 2017.”

That said, Mr Salis notes the pool of potential investment capital – in the form of Australian’s $3.5 trillion superannuation savings – continues to grow at an impressive and consistent annual rate of around 8%, according to Australian Prudential Regulation Authority data.

Opportunities to improve

Mr Salis recognises two key shifts are now occurring in the Australian economy present opportunities to better utilise Australia’s public markets.

“One is the well-documented desire from governments to re-engineer the Australian economy away from fossil fuels and towards green energy via the Future Made in Australia Act.

“The second and arguably less widely understood shift however is the recent and urgent emphasis toward bolstering Australia’s defence and national security requirements in the face of global challenges.

“These initiatives are a source of real goals and real projects. The AUKUS agreement for instance commits Australia to $A368 billion of projected expenditure into the mid-2050s. A raft of other programs announced focus on future-orientated industries such as energy transition technology, artificial intelligence, cyber, hypersonic capabilities and quantum computing as well as re-homing other advanced manufacturing capabilities to rebalance our economy. “

These changes have created an increased willingness to find ways to deploy significant capital into Australian industry. Listed equity markets are one avenue through which they could be pursued,” he suggests.

AUSIEX has identified three ways this could occur.

1. Attract companies to list in Australia

To encourage greater participation, groups such as the Stockbrokers and Investment Advisers Association (SIAA) could expand their work with government and participants to build awareness and tools to bring innovators and creators together with capital market participants and institutional customers to understand the rapidly changing manufacturing environment.

Additionally, offshore companies could also be attracted to list in Australia. Around 8% of ASX company listings are outside of Australia, with the largest share in New Zealand and the USA.

2. Develop more diverse financial structures

AUSIEX also notes that manufacturing, energy, defence, and high-tech industries are capital-intensive and require diverse financial structures and products – and capital.

“Australia has a strong and mature equities market; however, it may be argued that it does not have a ‘mission fit’ corporate bond market,” says Mr Salis. “Government and regulators have been slowly developing the local corporate bond market, with ASX as a leading participant in the process. However, the fact that ASX itself was recently unable to use its own platform to raise debt shows there is still work to be done.”

3. Revise regulations to foster innovation

Following the failure of ASX’s ambitious re-engineering project, which was shelved in November 2022, the emphasis on technology infrastructure in Australian equity capital markets has shifted from supporting market innovation to sustaining regulatory compliance and stability.

Mr Salis surmises, “If Australian capital markets do not innovate at the rate of their global peers, who are also competitors, they risk becoming technologically moribund and uncompetitive with opportunities simply going to other markets.

“Stakeholders here need to work together to remove obstacles to market innovation and improve the utilisation of Australia’s public capital markets. This would support growth and wealth creation for future generations of companies and investors.”

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