ASX vs TSX: the next generation of stock markets emerge to take centre stage.
In many respects, the two countries are diametrically opposed while in some others, they are closely related siblings.
Both are former British colonies located at the far ends of the Earth, that are now federal states with constitutional monarchies. Both are open economies favouring free trade with strong economic ties to the United States and with historical roots in the United Kingdom.
Their populations are similarly small, with Australia’s 24 million and Canada’s 36 million, spread across huge swathes of largely uninhabitable land. In fact, Canada is the world’s second-largest country while Australia is the sixth.
Their climates can be equally inhospitable and outright hostile, only at different ends of the spectrum.
Canada is dominated by a bitterly cold climate for most of the year, while Australia is the diametric opposite with the majority of the country subject to extreme heat during inverse seasons that see Australia’s hottest days of the year in December, and their shortest days of the year in June.
Largely because of their expansive territories, both have become economically reliant on commodities mining and dependent on natural resources underpinning their economies to the extent that both the Australian and Canadian dollars are colloquially nicknamed ‘commodity currencies’ by market participants.
The economic duel in the Commonwealth
According to the IMF, Canada’s economy ranks as the 10th largest by GDP, with Australia close behind in 13th place.
In economic terms, their respective geographies and geopolitical histories have meant that Canada is closely linked (and supported) by the US while Australia has direct market links to Asia and China — with both countries heavily linked both economically and politically to the UK.
Reflecting its geography, Canada has much closer ties with the United States – which absorbs around 75% of Canada’s merchandise exports and represents around 25% of Canada’s annual GDP.
Australia’s export destinations are more diverse and more oriented to Asia (China & Korea account for more than 20% of Australian merchandise exports and Japan accounts for another 20%).
Commodity wise, Canada has the world’s third-largest proven oil reserves with substantial reserves confirmed in Alberta’s tar sands. Along with crude oil, Canada’s major commodity exports include natural gas, coal and iron ore. Australia dominates in coal and iron ore but also has material exports in crude oil, natural gas, aluminium and copper. Agricultural and fishing products are material for both countries with Canada also focused on forestry products. Unlike Australia, Canada also has sizeable exports of machinery, equipment and cars.
Both countries are dominated by a handful of banks which have maintained a tight grip on the financial epicentres of both nations — Toronto and Sydney.
Canada’s “Big Five” - Royal Bank of Canada (RBC), Toronto Dominion Bank (TD Canada Trust), Scotiabank, Bank of Montreal and the Canadian Imperial Bank of Commerce, bears a stark resemblance to Australia’s Big Four - Commonwealth Bank, ANZ Bank, Westpac and National Australia Bank (NAB).
It’s worth noting that prior to the Global Financial Crisis in 2007-09, both Australian and Canadian major banks had far more conservative lending practices in their home markets compared to the US and British banks — a similarity that continues to pay strong dividends even to this day.
The similarities don’t stop there.
Both have strong Asian influences with immigration statistics showing around 21% of Canada’s population being foreign-born in Asia as the largest source. According to the Australian census, 27% of Australians were born in Asia.
After English (and French in Canada), both countries have Mandarin and Cantonese as the most commonly spoken languages.
Both Australia and Canada have experienced regional booms in housing markets in the past few years, typically in commodity impacted locations such as Alberta and Western Australia.
Like for like, one could compare the Sydney property market with that of Vancouver, and both show up in the greatest city to live statistics each year.
Both Australia and Canada currently have a Governor-General appointed by the Queen as “vice-regal” representatives to execute the Monarch’s executive, legislative, and judicial power, indicating that Great Britain still retains an arguably strong level of influence over both countries as if colonial days had never ended.
Historical stock market competition
When it comes to stock markets, both countries also bear a close resemblance.
Their beginnings hail back to the mid-1800s as loose groups of brokers and commodity traders came together to create formal representations of “stock exchanges”.
In Australia, the Brokers’ Association was created in 1861 and later became the Sydney Stock Exchange in 1871, fuelled by the runaway success of gold mining in Victoria. In the mid-1800s, Victoria was Australia's gold mining centre, propelling its population to grow ten-fold in the space of a decade since gold was discovered in 1851.
The TSX traces its informal beginnings back to the formation of an association of brokers by 12 Canadian businessmen in 1852. On 25 October 1861, the stock exchange was officially founded through the passage of a formal resolution at Toronto's Masonic Hall with only 18 stocks available for trade — and just like in Australia on the other side of the world, the majority of the stocks were commodity-driven.
Over the past 100 years, the ASX and the TSX have grown in parallel with the common theme of gradual centralisation bringing together smaller regional and state entities into national exchanges.
The ASX was formed on 1 April 1987 through the amalgamation of six independent stock exchanges that had operated in state capital cities. Likewise in Canada, up until the 1990s, some provinces operated their own exchanges which were formally amalgamated in 1999.
Mining and commodities
The prime source of IPO’s has admittedly been mining and commodities given both countries’ inextricable link with natural resources.
Canada has the world’s third-largest proven oil reserves with substantial reserves confirmed in Alberta’s tar sands.
Along with crude oil, Canada’s major commodity exports include natural gas, coal and iron ore. Australia dominates in coal and iron ore but also has material exports in crude oil, natural gas, aluminium and copper. Agricultural and fishing products are material for both countries with Canada also focused on forestry products. Unlike Australia, Canada also has sizeable exports of machinery, equipment and cars.
In many ways, Canada and Australia were the sources of much-needed raw materials to grow the British Empire back in the 1800s, and this association has only flourished — to the supreme advantage of Australians and Canadians that have benefitted greatly from their countries strong resources endowments.
2017 was the first time in history that the ASX floated more junior mining companies and raised more overall mining finance than the TSX.
Ever-greater demand for gold and battery-enabling commodities — including lithium, graphite, zinc, cobalt and rare earths — continued the trend in 2017 with 17 mining IPOs on the ASX and 7 on the TSX. If looking at lithium in isolation, both countries have attracted over 100 new listings combined since 2015, on the back the “lithium boom”.
Going public for commerce
IPOs are the primetime trophies in the contest between stock exchanges.
As a result of the growing competitive pressures, exchanges are actively seeking cross-border mergers while companies are routinely listing on multiple exchanges for a variety of reasons including better access to investor capital, market share and better market exposure for their respective businesses. Prime examples include Cardinal Resources, Orocobre and Perseus Mining.
Nowadays, world stock exchanges are vying for the most desirable and valuable new listings from abroad.
More so than ever before, stock exchanges such as the ASX and the TSX are demonstrating their capability to host large multibillion-dollar IPOs and winning business away from traditional powerhouses such as the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE).
There is however a new kid on the block in both countries, that’s gracing both stock exchanges — cannabis.
Medicinal cannabis and biotech
Over the past 5-10 years, an entirely new market sector has taken both the ASX and TSX by storm, and it has largely been due to legislative changes at the state and/or federal level in both Canada and Australia.
Medicinal cannabis is gradually maturing into a sizeable biotech niche industry. Just like all the other similarities these countries share, both Canada and Australia are leading the way in commercialising medicinal cannabis.
Canada was the first to legalise cannabis for consumers alongside several US states. The legal status has catapulted dozens of Canadian companies into strong market positions
Canada legalised medical marijuana nationwide back in 2001. That means that the industry has evolved a lot more and is not plagued with restrictions across state lines, as is the case in the US.
Not content with legalising the medicinal and industrial branches of the cannabis industry, Canadian policymakers now have their sights set on blanket legalisation of recreational cannabis use through the Cannabis Act. If this act becomes law, Canada will effectively make the sale of cannabis akin to how other countries see tobacco or alcohol — completely legal substances that are severely taxed and coming with minimum age requirements. The move is likely to create a huge multibillion-dollar industry and more importantly, provide fertile ground for companies to flock to the TSX.
The TSX currently sports four pot stocks each worth more than C$1 billion by market capitalisation (Canopy Growth Corp., Aurora Cannabis, Aphria Inc., harmaCan Capital/The Cronos Group) and given the ongoing trend, several more stocks are on course to join the Canadian billion-dollar club over the coming years, namely, Emerald Health Therapeutics and OrganiGram.
In Australia, the medicinal cannabis market is much smaller — partly because of a smaller population, but mainly because Australian authorities have been far less conducive to cannabis legalisation and have been far slower to enact key policy changes than Canadian and US policymakers.
The result is that the Australian crop of pot stocks are comparatively smaller and are working with sterner regulation, although the overall market and eventual revenue potential are comparatively similar.
Double-edged market sword
The world’s major stock exchanges share common challenges and are pursuing similar opportunities made possible by technology, free trade and laissez-faire capitalism. It has all been made possible by free-flowing capital that has created new economic growth centres and fostered an environment of intensified global competition between the world’s stock exchanges.
Accustomed to conducting operations in multiple countries, many corporates are becoming increasingly comfortable with listing outside their home markets.
Although most companies still prefer to list on their home exchanges, many of today’s global businesses are seeking the exchange that best suits their business plans, wherever it may be around the world.
However, on the flip side of this strong capital-led global expansion, there is limited evidence that a listing on any of the major global exchanges brings an advantage in valuation or liquidity.
All the top-tier institutions (and their expansive collection of stock exchanges) including Euronext, the Hong Kong Stock Exchange (HKEx), the LSE, ASX, TSX, Nasdaq, and NYSE, are all sufficiently mature and well-established to host any (and all) suitable companies looking to go public. So, in real terms, where a company lists is not as important as how and why it does so.
An unlisted company looking to go public may select the exchange for its IPO based on numerous criteria, such as the exchange’s prestige, its institutional investor base, listing costs, regulatory requirements, technology, stock market performance and the company’s targeted markets.
Although the costs of listing differ slightly among locations, listing costs are not the determinant factor that influences IPO and listing decisions.
More so, it’s the intangible factors related to end-user markets, culture, non-financial benefits, prestige and geopolitical themes that have fuelled stock markets such as the ASX and TSX to make their way up the stock market food chain.
Written by George Tchetvertakov
