Leading Australian economist Warren Hogan has told a group of Jarden clients that while consensus is for a ‘V’-shaped recovery in Australia, a ‘W’-shaped downturn is more likely.
Why Australia is the best mate to have in our post-Covid bubble
Travel has been the focus of recent trans-Tasman bubble discussions between Australia and New Zealand. But beyond a safe travel zone, we should be focusing on getting closer to our closest neighbour to supercharge our economic recovery and our capital markets.
If we’ve learned anything through lockdown, it’s to appreciate the people in your bubble. Luckily for New Zealand, we have the opportunity to extend our bubble to our Australian neighbour and further deepen what is already a strong economic relationship.
Pre-Covid-19, accessibility was something that we took for granted. New Zealand businesses and investors have had a wonderfully global ambition, looking at opportunities from the rest of the world, going further afield to chase the next big thing and unsurprisingly overlooking what was right on our doorstep. But with the Covid-19 outbreak affecting supply chains and disrupting travel and trade, we are now facing a more difficult landscape and things might not be as easy as they used to be (possibly for years to come.)
A deliberate approach, becoming truly excellent in a large targeted market as opposed to being good as a small part of massive market will become a more common strategy for businesses and investors. To achieve this will require us to reset and focus on our close relationships and being more targeted with our closest neighbour seems like the most sensible way forward. For New Zealand and Australia, it’s also a chance to define to the world why we are a bit different and the value that creates.
“Now is the time to be harnessing our economic relationship with Australia, not bypassing it for the rest of the world.”- James Lee
First and foremost, it’s the availability of capital that makes Australia such a meaningful market for us. For companies who are going to require ongoing capital, we have access to the ninth largest market in the world right on our doorstep. New Zealand and Australia’s capital markets should be the starting point for our businesses because, with access to this large pool of capital, we could in theory raise every single dollar we’d ever need without looking further afield.
With Australia and New Zealand’s capital markets becoming increasingly synchronised, it makes sense for us to think of Australia as an extension of our own capital markets in a post-Covid-19 world and investors shouldn’t be afraid to include Australian stocks in their portfolio. They can get global exposure and diversification by looking to both markets. And large investments are also much more accessible in Australia. New Zealand has 24 companies valued at over $1 billion; in Australia it’s 178 companies. For a retail or institutional investor, it means you have the thick end of 200 companies valued at over $1 billion that you can invest in.
Beyond the availability of capital, Australia is also a very easy place for us to do business and has some real advantages. Our similar time zones are good for connectivity, in that businesses and investors can more effectively keep step with the markets and can touch most global markets (Asia, US) within two hours close of our day. Once we have a trans-Tasman bubble in place that allows for safe travel without the need for 14-day quarantine, the short travel distances across the ditch also make it even easier for us to do business compared with the rest of the world. In addition, we have common laws and common banking systems which is important because the banks are a big part of the investable universe. Our similar currencies, cultures and language are more good reasons for us to be focusing on our closest neighbour. And we’re mates, with a longstanding relationship and shared ANZAC spirit that make them a natural partner.
For our businesses, combining New Zealand’s team of 5 million with Australia’s 25 million means access to a significantly higher number of consumers. Australia already ranks as our second largest trading partner with two-way trade totalling around NZ$27 billion in the year ended June 2019, a clear indication of our already strong economic relationship. Opening up to Australia will allow local businesses to expand, sell more products and do more deals. With the world focused on supporting local goods and services, it’s a chance for us to get behind our Australasian businesses. New Zealand might also prove to be a good option for some big Australian businesses that are looking to do more onshore or localised manufacturing.
As a result of the Covid-19 pandemic, we will become more reliant on Australia’s tourism and food sectors as we work to kickstart our economy. Moving forward, the focus for New Zealand and Australia should be on working together more closely to leverage our complementary strategic advantage in the food and agriculture sectors, which will have a significant role to play in our economic recovery and will be crucial for job creation.
Our systems are well-aligned but now we need to focus on how we really take advantage of the opportunities we have with Australia on our doorstep. Things are going to be more difficult in a post-Covid-19 landscape, but the good news is that there is potential for our businesses and our economies to work even more closely together. Now is the time to refocus with our closest neighbour and to build some truly great trans-Tasman businesses.
James Lee is CEO of investment and advisory group Jarden. With 20 years’ capital markets experience he is involved in all Jarden’s equity capital transactions from IPOs to secondary sell downs, mixed ownership models and bespoke capital solutions. James leads the firm’s relationships with corporate and institutional clients across Australasia. James was a member of the steering committee for Capital Markets 2029, and the investment committee for Cystic Fibrosis New Zealand.
A version of this article was published on the New Zealand Herald on 27 June 2020.
This article reflects the opinions and views at the time of publication, and is not to be relied upon as a basis for making any investment decision. Please seek specific investment advice before making any investment decision. Jarden is an NZX Firm, a broker disclosure statement is available free of charge at www.jarden.co.nz. Jarden is not a registered bank in New Zealand.
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