The ups and downs of Tallinn Stock Exchange

Tõnis Oja
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Photo: Internet

«Perhaps cheaper?» said President Lennart Meri over telephone at the festive opening of Tallinn Stock Exchange twenty years ago, about to buy his very first securities.  

«Under your very eyes, I hereby do purchase these four securities, a first in my entire life,» had he just noted, a minute or two before, in his brief speech.

Mr Meri was no exception. Back then, lion’s share of Estonians had never held a share or any security in their hands. What’s more, most were probably totally unaware what exactly securities were and what one was supposed to do with them.   

The one and half happy years

That summer changed a lot. Soon, shares and bond begun to creep into our vocabulary. In half a year, investing i.e. speculating in the stock exchange was something akin to a national sport.  

The initial days of trading were a bit of a struggle. «Not in investors only, the novel system and rules caused confusion in the very brokers,» day one was described in the business daily Äripäev.

That day, nine securities transactions were done, the turnover amounting to 9.52 million kroons (€0.6m) which would actually be an average trading day even today.

«In hindsight, it was not wisdom to put the system up in the Internet immediately, with all the mistakes showing. Had we not done that, we could have quickly corrected the mistakes. Perhaps your own brokers yell at you, but so what. Now the entire Estonian media was watching whether trading was on or off,» recalls the stock exchange’s first chief Helo Meigas.

«But we did stand out internationally, being so transparent and open,» she added.

But a boom was on. That very year, in October, turnover was up at €24m in today’s currency – almost twice of today’s monthly average. A year later, by July 1997, the turnover had grown to € 138m equalling the yearly turnover at Tallinn Stock Exchange lately.

The total turnover of 1997 amounted to €1.4bn. In the twenty year we have had the exchange, in only three years it has broken the billion euro barrier – in addition to the above, also in 2005 when Swedbank took over Hansapank, an in 2007 at the peak of the real estate boom.

They say you are a real investor only after surviving two crises. If that be true, we ought to be seasoned indeed, having precisely two booms and two busts under our belt.

In the end of 1996 and first half of the next year, the exchange was quite an Eldorado. By end of August 1997, the stock index was up nearly six times. The exchange was talked about as a casino, with the exception that everybody wins.

The lethargy years

Mainly, stock market bubbles are caused by greed. Our fist boom proved no exception. The keyword was «repo». Essentially, loans were assumed to buy shares, backed by these very shares.

It ended bad. Estonia’s first stock market crash came about on October 23rd 1997 as index dropped 15.3 percent. The worst performer of the day was Eesti Ühispank (now SEB), the share of which shed nearly a third. Till today, this is the second worst day we have ever had. By the way: all four worst drops are in that October and November, while two of the four greatest rises are in that very November.

Our second boom begun as Estonia joined EU, the bubble formed at end of 2006. When Hansapank was taken over by Swedbank in spring of 2005, people developed lots of free money – then Hansapank chief Indrek Neivelt said the takeover spawned about 1,000 Estonian kroon millionaires –, and in the year that followed, seven new enterprises were listed. People had what and where to invest. At Tallink IPO in December 2005, a whopping 16,000 small investors participated – a record till this day.

While index shows we are rising the third time now, with mere five percent lacking from all time high, it’s far from boom. To the contrary, it is rather lethargic – turnovers are low, the number of listed companies has shrunk. The latest IPO – by LHV – was in waiting for six long years.  

In 2014, for instance, turnover dropped to €127m which was smaller than the initial year of 1996, from June to December. Last year’s turnover was mere €1.5m higher than in 1006.

Enter LHV

Asked about the lull, third chief of the exchange Kaidi Ruusalepp takes a long pause. «We have two problems. Firstly, and I don’t know how to solve it, is the habits of companies to involve capital. They rather take loans, that’s just the way it is,» she said as the journalist pressed for some answer.  

«Secondly, in Estonia the stock exchange has always been on its own – the state is indifferent, even the market players. And yet the exchange ought to be like the heart of the capital flow – pumping the blood, pumping the transparency, pumping the ratings,» she added.

To breathe new life – this is the mission of newcomer LHV Group. While volume of IPO was ridiculously low at €13m, the never tried to hide the aim of just creating a large number of investors. Which worked.

The share has now traded for a week, and the price has nicely risen. Perhaps, others will be encouraged to get listed, and we will soon again be able to talk about an active and vital native stock exchange.