The Ministry of Economic Development and the Minister of Commerce, Hon Leanne Dalziel have set up an industry-led taskforce to produce a blueprint and action plan to develop New Zealand's capital markets (“CMD Taskforce”). The objectives, scope and terms of reference of the group does not explicitly state that they will be covering debt markets as well as equity markets.

It would seem inconceivable that debt markets are not included. The term “Capital Markets” is applied rather loosely to both equity and debt markets in the finance and investment world. Some financial media commentators have also criticised the use of the term “financial system” in the CMD Taskforces's terms of reference, as this normally refers to the overall system for banking transactions, not financial, investment and capital markets. Their job boils down to finding out whether our capital markets, as they currently operate, help or hinder economic growth for New Zealand and what can be done to improve their contribution to growth.

There is no question that a healthy and robust economy needs liquid, deep, credible and well-functioning financial and capital markets. Indicators as to business and national economic performance should come through pricing-signals in debt, equity and FX markets.

We certainly have some problems to solve in our view:-

• Judging by the dearth of new IPO listings on the NZX over recent times, local businesses do not see the NZX as a competitive and attractive source of capital. Are listing rules/costs too onerous? How can the NZX be both the market regulator and commercial operator?
• Our major tourism and dairy industries are barely represented on the NZX sharemarket.
• The NZ Government Bond market is illiquid with a tiny number of price-makers at a time when the Government is about to increase its debt supply.
  Local fund managers are having their NZ fixed interest mandates from superannuation clients switched to global fixed interest, as the credit risk diversification in the NZ market is too narrow.
• Local Government councils need to borrow $20 to $30 billion over the next 10 years for infrastructure projects, and they do not have a liquid and fairly priced debt market to issue into.
• Retail investors have low levels of trust and confidence (rightly or wrongly) due to high profile collapses (e.g. finance companies and Feltex).

There has also been comment from a couple of sources that the list of industry individuals on the Taskforce does not represent small investors at all. One would hope that well-respected investment identities such as Dr Gareth Morgan and Adrian Orr (NZ Super Fund) would bring this aspect.

If nothing else, the well-developed, humorous turn-of-phrase that both these economists possess will make the Taskforce meetings rather eventful! Let's hope Chairman, Rob Cameron can lead some positive and doable recommendations. Research on the opportunities for New Zealand as an international financial centre would be a good place to start!