Wednesday, November 24, 2010

Eastern European Stock Exchanges

The Economist: Bourse Battle
Bloomberg Businessweek: Shares in Warsaw Stock Exchange Rise After IPO

On November 9th, the Warsaw Stock Exchange (WSE) launched its initial public offering (IPO) of shares to great demand. The Polish government is looking to raise 25 billion zlotys ($8.6 billion) to pay for part of its budget deficit in the coming years. The IPO raised 1.2 billion zlotys, which was more than anticipated, and represented 63.5 percent of the exchange’s total stock. The targeted price per share was 36-43 zlotys, but the price for each share by the end of the day was 46 zlotys.

This is a massive privatization effort by the Polish government. Previously, stock in the WSE has been under the aegis of the Polish government. Although this gave the Polish Government great control over the economy, it was an outdates policy resulting from actions taken immediately after Soviet rule. There is evidence that Poland is succeeding in privatizing its stock market. There are now 700 businesses listed on the exchange, and daily trading surpasses $600 million. The November 9th IPO was the 25th IPO this year, which is a strong number of IPOs for the WSE compared to Poland’s neighboring countries.

Poland is not alone in Eastern Europe in trying to create a viable stock market. Vienna is striving to be the regional leader too. The Vienna stock exchange, the CEE Stock Exchange Group (CEESEG), brings together the exchanges from Vienna, Budapest, Prague, and Ljubljana. However, in the CEESEG, there has only been one IPO since 2007. In the Prague exchange alone, there are only 27 companies listed, which is down from over 150 a decade ago.

The development of multiple stock exchanges has led to competition for companies’ IPOs. Many companies in Eastern and Central Europe find that their own nation’s stock exchange is fragmented or unstable. For example, Romania has two competing stock exchanges. This is a problem as smaller stock exchanges have less liquidity than larger ones, decreasing investment. The WSE has been a popular destination, drawing companies from Ukraine, Romania and elsewhere. The CEESEG is targeting companies in the Balkans. Although both are looking for international clients, the two are still mostly composed of domestic companies.

The biggest threat to the WSE or the CEESEG is not from one another, but from the London Stock Exchange (LSE). The LSE has attracted many listings from Russia, Ukraine, and Kazakhstan. Even the chief executive of the WSE admits the WSE is modeled after the LSE. Another threat outside of Eastern Europe is the Istanbul Stock Exchange (ISE). The ISE is has double the market capitalization of the WSE and five times the turnover. The ISE may also act as a more accurate model for the WSE as the ISE is still state-owned, and like the WSE, it has not expanded its sphere of influence much beyond its own borders.

Eastern European companies are now looking for a place to hold an IPO, and investors are eager to invest. The stock exchanges are rising in Eastern Europe to serve that demand. While it would be beneficial to the region if the WSE and CEESEG were successful, as money would stay in the region, it will be a long time before either can rival the Dow Jones or the LSE.

1. Financial markets allow for businesses and governments to conduct commerce around the globe. If the world is so globalized, then why do companies care which stock exchange their stock is listed on?
2. Given that Greece was one of the nations worst hit by the financial crisis, how wise is it for the CEESEG to focus on gaining investment from Balkan nations?

No comments: