Should you invest in NSX stocks? Here’s why it is too risky

Let’s look at one of the more peculiar questions facing Australian investors: should you invest in NSX stocks? The NSX (National Stock Exchange) is Australia’s alternative exchange. But by alternative, is it one to rival the ASX? Let’s find out.

Just for the record, we are not talking about the listed entity on the ASX, we mean companies listed on the NSX itself.

How the NSX came to be

It traces its roots to the old Newcastle Stock Exchange in 1937 when there were several regional stock exchange rather than central ones. As the capital city exchanges grew and eventually became the ASX in 1987, the NSX lost popularity. It was ‘reborn’ in 2000 as part of a plan to combine the few remaining regional exchanges into one. In the last decade or so, there has been a push to make it a genuine alternative exchange similar to the AIM (Alternative Investment Market) in London.

The AIM was founded with the intent of it being an exchange for smaller companies to raise capital with less red tape. And it is so successful, it has raised 54% of all capital raised in Europe in the last 5 years. You may even find some ASX-listed companies (particularly junior explorers) there. It has supported more than 4,000 companies to raise nearly £135 billion in its 30-year life. In 2024, £1.6 billion was raised, the average post-IPO price performance was +47% and the average market cap was £101m. The AIM is far from the only alternative market; there’s the TSXV in Canada, the NASDAQ in the USA…but is the NSX really a fair comparison to them?

Should you invest in NSX stocks? Here’s why you shouldn’t

The trouble is that even though there are some companies on the NSX, it is far smaller compared to any of those other exchanges and there is low liquidity. This means getting in and out of companies may be very difficult, even if you are prepared to accept a discount. Of the NSX’s four dozen or so securities, only two traded at all on March 17, 2025 – Danakali (yes, the same potash play that used to be listed on the ASX) and Sugar Terminals. There are only 16 brokers that can trade NSX securities, and the total market capitalisation is $2.7bn.

Of course, there are some companies listed, because there is less red tape for companies already listed and those seeking to list. The minimum requirements are for $2m Net Tangible Assets, a $5m market capitalisation and for 50 shareholders (with each holding $2,000). Compares this to the ASX: Companies wanting to list there need at least 300 non-affiliated shareholders as well as to have $4m NTA or an A$15m market capitalisation. They can get around either of the former two requirements through the ‘profits test’, either $1m in aggregated profit from continuing operations over the past 3 years and $500,000 from the last 12 months.

The bottom line of all this is that investing here is a far riskier business than on the ASX. Investors do lose money on the ASX – even all of it at times – but it is easier to get money back when you actually can trade companies and it is less likely to be the case on the NSX. We would like to see a far higher level of liquidity on the exchange before our view changes. We could continue to see the odd ASX company jump ship, but that doesn’t mean that the NSX is going to grow into an alternative exchange in the way that the AIM or the TSXV is.

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