Transcript The New Capital Markets in Central and Eastern Europe

The Prospects of Capital Markets
in Central and Eastern Europe
Michael Schröder
Centre for European Economic Research (ZEW)
Mannheim, Germany, www.zew.de
Dubrovnik, 27 June 2003
Contents of the Presentation
 Evaluation
 Future
of the Status of CEE Stock Markets
Prospects of Securities Exchanges
 Countries:
Czech Rep., Hungary, Poland, Slovak
Rep. In some sections Baltic countries, Slovenia
 ZEW-Discussion
Paper 02-57 (with J. Köke)
(incl. also bond markets, corporate finance, case
study “corporate finance in Poland”)
How large are CEE Stock Markets?
 All
CEE exchanges together amount to
x% at the end of 2001:
• 0.2%
of World stock market capitalization
• 9.2%
of the German Stock Exchange
• 95.2%
of the Athens Stock Exchange
 The
Warsaw Stock Exchange has approx. 46%
of the capitalization of the whole region
Stock Market Capitalization, 1995-2002
(market value of listed stocks in % of GDP)
120,0%
100,0%
Czech Republic
Poland
Germany
Hungary
Slovak Republic
Spain
80,0%
60,0%
40,0%
20,0%
0,0%
1995
1996
1997
1998
1999
2000
2001
2002
Stock Market Capitalization, 1995-2002
(market value of listed stocks in % of GDP)
Czech Republic
Hungary
Poland
Slovak Republic
40,0%
35,0%
30,0%
25,0%
20,0%
15,0%
10,0%
5,0%
0,0%
1995
1996
1997
1998
1999
2000
2001
2002
Number of Listed Domestic Firms (FIBV)
250
200
Hungary
150
Poland
Czech Rep.
100
Slovak Rep.
50
0
1995 1996 1997 1998 1999 2000 2001 2002
Stock Market Liquidity, 1995-2002
(trading volume in % of market capitalization)
Czech Republic
Poland
Germany
250,0%
Hungary
Slovak Republic
Spain
200,0%
150,0%
100,0%
50,0%
0,0%
1995
1996
1997
1998
1999
2000
2001
2002
Derivatives Markets
Start
Futures on:
Stock Index
Currency
Interest
Individual stocks
Trend
Hungary
1995
Poland
1998
Yes
Yes
Yes
Yes
Declining
Yes
Yes
--Yes
Booming
Czech Republic
Permission in 2001
Not yet active
Regulation of Stock Exchanges
 Strict
regulation of official market segments
 Rules
and fees (admission, maintenance)
comparable to western exchanges, but different
across CEE exchanges --> harmonization necessary?
 Listings
concentrated in the free market
(except Warsaw)
=> typically unattractive for (foreign) investors
=> rules too strict / costs too high in primary markets?
CEE Capital Markets: Summary
 Stock
markets still small and less liquid
compared to western markets
 Trends:
– decreasing listing activity (except PL)
– booming derivatives market in Poland
– increasing institutional investment (HU, PL)
 Warsaw
stock market largest and most
developed amongst CEE stock markets
Corporate Finance: Summary
 Internal
finance clearly dominates
 External
finance by domestic and foreign
loans (HU, PL)
 Small
(and decreasinig) role of equity
finance (except HU)
Current Organization of CEE
Exchanges: A complex picture
 Baltic
exchanges: Tallinn and Riga are owned
by the Helsinki Stock Exchange, Baltic list
 Warsaw has trading system compatible with
Euronext, but is independent
 Budapest: connected to German Stock
Exchange (Xetra)
 Prague: agreement with LSE, interested in
central CEE exchange?
 Bratislava, Ljubljana, Lithuania: wait and see
Organization of Securities
Exchanges: Results of Research
 High
international standards of infrastructure
and legal system  attractive for foreign capital
 Economies
of scale particularly in trading
 common trading platform
 Linkages
with larger exchanges:
– Access to foreign capital markets
– Higher liquidity, lower trading costs
Future Organization of CEE
Exchanges: Four Options
 Stand-alone
solution:
high overhead costs, trading rules not
harmonized, unattractive for foreign investors
 Fully fledged central CEE exchange:
different interests of CEE exchanges, high costs
for build-up, still low capitalization
 Individual
alliances with western exchanges
 CEE platform at one western exchange
Proposal for an Optimum
Solution for CEE exchanges
 CEE
platform at one western exchange
 (Some)
Influence on the management of the
exchange
 Highest visibility of CEE stocks
 Fully harmonized trading rules and cost
structures
 Most attractive for foreign investors
 High liquidity, attractive for issuers and
investors
Future Organization of CEE
Exchanges: Likely Developments
 Individual
alliances of CEE exchanges with
western exchanges
– Partly harmonized trading rules and cost structures
– (Almost) no influence on the management of the
western exchange, CEE equities hardly visible
– Second best solution for investors and issuers:
entry to international capital markets
 Nordic
Exchange (Norex + HEX) including the
Baltic Exchanges
Summary
 CEE
exchanges are not very attractive for
(foreign) investors and domestic companies
 Alliances
with western exchanges
 Development
of domestic banking system and
venture capital markets (for small companies)
 Development
of domestic institutional
investors (driving force for domestic market)