Xero has outgrown NZX after 3000% gain

New Zealand’s stock market has become too small for Xero, whose market value has soared about 70-fold to $4.28 billion since its debut a decade ago.

The maker of cloud-based accounting software last month said it was leaving for a sole listing in Sydney, where the shares have traded since 2012. Xero billed the move as a graduation of sorts, saying the move would improve trading in the stock, increase analyst coverage and draw bigger investors.

Losing the listing of its biggest technology company is another blow for Asia’s smallest developed market, which is already plagued by low liquidity and transparency. Offmarket transactions, when brokers make deals directly with each other rather than putting in orders publicly, dominate trading.

“It’s difficult for investors to place a big bid, it’s difficult for them to get the stock and it’s difficult for them to exit the stock,” Xero founder and chief executive Rod Drury said, citing the company’s liquidity across multiple markets. One big fund, he said, took almost a year to sell a stake in Xero.

The departure of Xero, which accounts for 3.8 per cent of exchange operator NZX’s equity turnover as its 10th largest company, may hurt trading volume. The exchange operator posted an 8.2 per cent drop in securities trading revenue for the six months through June.

On-market trades represent only about two-fifths of the total value traded this year through November, according to NZX data.

NZX is responding to investor concerns. After a five-month review, the company last month announced a slew of initiatives to boost growth and on Wednesday said it will change trading and pricing rules in the second half of 2018 to increase onmarket trading. A trial running since July has helped lift average daily onmarket value by 13 per cent, it said.

The company has the lowest annual operating margin after BSE among the 25 listed security and commodity exchanges across the world that are tracked by at least three analysts, data compiled by Bloomberg show.

One selling point for New Zealand’s stock market is its performance. The benchmark S&P/NZX 50 Gross Index is trading near a record and has risen 22 per cent in 2017 in US dollar terms, outperforming the S&P 500.