Year of bloodletting on the bourse

The stock offering of the pharmaceutical company J. Molner, which went on the alternative stock exchange in November, was not fully subscribed. The traditional bell-ringing ceremony took place in the company's laboratory. Board member Jason Grenfell-Gardner on the screen. Photo: Tairo Lutter

Just like the stock markets of the world, the Tallinn Stock Exchange also had a year of great decline. US stock markets are ending their first year of decline since 2018 and the year of the biggest decline since the 2008 financial crisis.

The US stock index S&P 500 has fallen by a fifth over the year, and the NASDAQ composite index, which mainly characterizes the technology sector, by almost a third.

Although the Tallinn stock exchange index OMXT has fallen by "only" 12 percent over the year, this does not mean anything to be happy about for our investors. It was also the first year of decline on the Tallinn Stock Exchange since 2018, but the biggest year of decline since 2011, when the stock exchange index fell by as much as 24 percent.

At that time, the debt crisis was raging in Europe, which of course rattled the stock markets of the Old World more than on the other side of the Atlantic Ocean. However, the financial crisis devastated our stock market – the OMXT index fell by a full 63 percent in 2008.

The electricity producer saved Tallinn

The relatively modest decline of the index this year is mainly due to the electricity producer Enefit Green, whose share was the only positive one thanks to skyrocketing electricity prices. All other shares of the main list – and the alternative list First North, which has been popular with investors for the past two years – saw their share prices decline in the ending year.

One could count the number of stocks with single-digit percentage declines on the fingers of one hand. These were Ekspress Grupp and Merko Ehitus on the main list and Linda Nektar on the alternative exchange. The pharmaceutical company J. Molner has also lost less than ten percent of its value, but its shares only started trading at the beginning of November.

In total, companies on the main list of the Tallinn Stock Exchange have lost 630 million euros of their value in a year, which is slightly more than the combined market value of Tallinna Kaubamaja and Tallinna Vesi.

When viewing the trading activity of our stock exchange, the number of transactions of the main list increased by five percent this year, to a record 827,000 transactions, but at the same time, the stock exchange turnover decreased by almost a quarter, to 363 million euros.

On the alternative market, the number of transactions increased by more than a quarter, while the turnover decreased by a fifth, to 12 million euros.

While 2021 was called the IPO-drome on the stock exchange due to the new listed companies – two companies went to the main list and six to the alternative market with the initial public offering of shares (IPO) – the ending year was more modest in terms of stock market debuts. None were added to the main list this year, but entering the alternative market was still quite active. Initial offerings of shares were organized by five companies, of which two (Punktid Technologies and J. Molner) were not fully subscribed.

The Eften United Property Fund was added to the list of funds.

In addition to initial offerings, a whole series of additional offerings of shares and bonds took place on the stock exchange. Coop Pank included 23 million euros in the share offering and LHV 43.6 million euros, to which a bond offering of 20 million euros was added. LHV also organized a share split, where shareholders received nine new shares for each existing share, which turned the security into a cent share. Securities whose price is less than five euros (dollars) are called cent shares.

The future seems sort of grey

What can the stock exchange expect next year?

The reason for the stock market decline in the ending year is mainly the rapid inflation, but especially the sharp rise in interest rates. Although the outlook for the economy is predicted to be quite poor for the next year as well, there is moderate optimism about the US stock market. For example, the investment bank Morgan Stanley forecasts the stock index S&P 500 to be essentially stagnant, while Deutsche Bank forecasts a 17 percent increase.

A lot depends on how aggressive will be the interest rates policy of the US central bank, the Federal Reserve (Fed).

Rob Dent and Aichi Amemiya, economists of the Japanese banking group Nomura, suggest that day-to-day politics will influence the Fed's behavior next year. President Biden's administration was silent this year, even as the Fed raised the benchmark interest rate to 4.5 percent from zero a year ago. However, this silence may come to an abrupt end if the steep rise in interest rates begins to affect the labor market.

”Next year, when jobs start to disappear, Congress may become more critical,” the analysts wrote in a report sent to their clients. “[Federal Reserve Chairman Jerome] Powell's hawkish stance [support to tougher monetary policy] has so far been easier to accept because of historically low unemployment, but that could change if the labor market takes a new direction," they added.

Unlike the European Central Bank, which is only responsible for controlling inflation, the US central bank is also responsible for employment.

The Tallinn Stock Exchange's prospects for the next year are considered modest. In Postimees’ big forecast published on Tuesday, the participants’ predictions for the stock market index next year range between a three-percent drop and a 13-percent increase.