Baltic exchanges dormant in doldrums

Photo: Mihkel Maripuu / Postimees

Recently, it was four years since Tallinn stock market last saw an initial public offering; in Latvia and Lithuania, even more time has elapsed after the last IPO.

As compared to Tallinn, the Southern neighbours have always had it quieter. Over these past years, turnover at the exchange is in constant decline even with us.

While some slight hopes surfaced, last year, that the turnover bottomed out in 2012, the initial months of 2014 seem to be crushing the illusion – year-on-year, these five months have brought the exchange turnover down by more than a third.

As assessed by a well-known financial expert, our exchanges look like Chinese ghost towns: world class infrastructure, but no life.  

Indeed: together with other Baltics, Finland, Sweden, Denmark and Iceland, the Tallinn Stock Exchange belongs to the system of a world leading exchange operator, NASDAQ OMX, where shares of Apple, Google, Starbucks, the electric car maker Tesla and lots of other attractive companies trade.

How to revive the local capital market, was the issue raised at a high-level forum in Riga the day before yesterday, called Capital Market as Driver for Economic Growth and Job Creation.

Exchanges, and more broadly the less regulated capital market, provide enterprises the opportunity to involve capital, to grow and to create new jobs. For investors, however, exchange is the most transparent investment environment.

Sadly, the model is beautiful only in theory, and it rather functions in the USA. In Europe, economy is bank-centred and the main money source for companies is the bank. Meanwhile, a functioning capital market is vital for the economic climate.

As underlined by European Commission deputy head for financial services policy Almorò Rubin de Cervin, European stock markets and corporate bonds have done very well – when compared to the rest of the economy.  

Scientific research shows that a functioning capital market increases gross domestic product and, therefore, enhances job creation. However, a vital and functioning capital market does take some effort. Well-being of a capital market is impacted by the state (government and parliament), investment companies, but also the potential listed companies.

A single panacea like listing large state companies on the exchange, or greater involvement of pension funds to enhance local capital markets, does not exist, however. All must do their part.

As assured by Premia Foods chief Katre Kõvask, the exchange listed years have been to their benefit. According to her, company ethics have improved, as well as leadership culture, image and PR.

«I feel like a superstar, as every day some journalist seeks to talk to me,» said Ms Kõvask.

Helsinki exchange head Lauri Rosendahl said that for small and medium enterprises (the category that fits nearly all Estonian firms), less-regulated markets would fit better – the alternative exchanges.  

We do have the alternative exchange – called First North – with one listed company, the telemedicine firm Telescan; but, up to now, not a single transaction has happened with its shares.

Not much success for First North in other Baltics either, neither in Finland. In Sweden, however, the alternative market is very successful; there, it has almost the same amount of companies listed as the main exchange.

Through surprisingly rose-coloured glasses, however, the Baltic exchange future is seen by Stig Roar Myrseth, founder of asset manager Dovre Forvaltning, who according to organisers of the forum is the best shares picker in Norway. To him, the Baltic exchanges call to mind the dormant Oslo one, in the 1970ies. After achieving a certain level of maturity, the exchange started growing by itself.

Mr Myrseth believes that, in a couple of years, the Baltic exchange is ready to rise as well, becoming as active and liquid as the Oslo exchange has been, for several decades now.

He stressed that the Norwegian exchange was not helped by privatisation till the turn of the century; and that one of the reasons for the rise was the fact that investment funds became popular.

The author’s transportation and accommodation was paid for by NASDAQ OMX Tallinn.