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Oct 30, 2007 16:14 EEST
SOFIA (Bulgaria), October 30 (SeeNews) – Southeast Europe’s burgeoning capital markets should unify trading procedures and create value to facilitate consolidation and speed up development, bourse officials said.
The stock exchanges of Bulgaria and Romania have posted considerable rises since the beginning of the year, fuelled by the two countries’ accession to the European Union on January 1. This attracted a large number of foreign investors and boosted foreign direct investments in the Black Sea neighbours.
The blue-chip BET index of the Bucharest Stock Exchange (BVB) has gained 25% since January, while the BET-FI index, which only tracks Romania's five regionally-defined investment funds, the SIFs, has risen about 27% in the same period.
The blue-chip index of the Bulgarian stock exchange has risen about 60% since end-December and the broad BG 40 index has more than tripled in value in that period.The stock market in Croatia, which hopes to join the Union in 2009, has also risen sharply, helped by some wildly successful IPOs, and both its indices have risen more than 60% this year.
The stock exchanges in the region can attract more foreign capital and secure faster growth through regional cooperation but experts say the bourses are unlikely to build much closer ties in the short term.
In a realistic scenario the process of consolidation of southeast Europe’s capital markets will start with global stock exchange operators buying small stakes in local ones or forming some other type of cooperation, rather than with powerful European players acquiring control over local markets right away, Deutsche Boerse managing director Jurgen Roethig told SeeNews.
“In the next three to five years we will see steps towards that. I think it will probably take rather ten before (…) you have a network of southeastern European exchanges,” Roethig said.
Roethig also said Deutsche Boerse was interested in taking part in the process.
The Bulgarian Stock Exchange (BSE) has announced that it is seeking a strategic partner to maintain growth and a number of European stock exchange operators have expressed interest. The process, however, seems somewhat stalled as the country’s Finance Minister Plamen Oresharski said earlier this year the sale of the 44% government stake in the BSE is currently not a priority.
Slovenia's Ljubljana Stock Exchange (LJSE) has also become a takeover target for several European stock exchange operators, including Nordic OMX and the bourses in Vienna, Warsaw, Frankfurt and Milan. The association of LJSE shareholders, which controls 83% of the Slovenian bourse, has yet to declare officially whether they will sell their holdings.
“Consolidation will not pass by anyone (…) As far as the Bulgarian Stock Exchange is concerned, I hope in the following one, two, three years it may be part of a big group but it is not a tragedy if we remain independent provided that we are at the same level as others,” BSE chairman Victor Papazov told SeeNews.
Papazov added the adoption of a new trading platform on the BSE would help the capital market of the country become more reliable as well as more dynamic. The BSE earlier this year decided to adopt Deutsche Boerse’s XETRA trading platform, which is expected to be put into operation in the second quarter of 2008.
The process of consolidation of the capital markets in the region is likely to take time as local owners lack a strategy for development, unlike the bourse officials, Belgrade Stock Exchange associate specialist for control and supervision Miroljub Ristic told SeeNews.
“We know what we need, what the investors need – more liquidity, more transparency, easier procedures and we want to provide that (…) but we don’t have a mandate on that,” Ristic said.
The number of foreign investors targeting Southeast Europe’s stock exchanges is rising but the liquidity on these bourses is not enough to provide comfort for foreign investors who spend large sums of money, making it hard for them to close their investments fast, brokers have said.
“Just imagine the procedures in this part of the world where everything will be complicated (…) Approaches? Yes there will be approaches in the near future but to complete the set up of the process is on the long, long way,” Ristic added.
“I don’t think it’s necessary for the markets here in the southeast Europe region to become a part of a global operator, I see a lot of potential for them growing independently of such a big takeover,” Warsaw Stock Exchange CEO Ludwik Sobolewski told SeeNews.
Sobolewski said financial institutions would not be immediately interested in these markets solely because of their potential part in a global structure and another type of work was needed in order to generate interest.
STEPS TO SPEED UP CONSOLIDATION
“You can very successfully for the time being develop this interest coming from abroad if you have foreign intermediaries, if you enhance the brand name of the Bulgarian stock market,” Sobolewski said.
Prague-based investment banking house WOOD & Company set foot in Bulgaria and Romania earlier this year by becoming an associated member of the two stock exchanges, lured by the EU newcomers’ strong growth potential. Bulgaria and Romania joined the European Union in January.
“Enhancing the brand may require a partnership with another exchange but it doesn’t have to be a bigger one or a giant,” Sobolewski added. He also said the stock exchanges in the region should aim to create value and gain size and importance to position themselves better in a case of a possible takeover.
“They [region’s stock exchanges] can give up some of their independence in order to become a part of a global capital market and (…) in order to do so you need to have standardised processes, you have to have standardised software (…) that is a precondition to start in the game of the big ones,” Roethig said.
“We can unify the trading procedures, we can unify the way to communicate (…) we must allow (…) cross membership, cross trading. All these can be done without a change in ownership,” Ristic said.
The Belgrade Stock Exchange has a cooperation agreement with the Vienna Stock Exchange, which has signed cooperation agreements also with the bourses in Bucharest, Ljubljana, Sarajevo, Sofia, Zagreb and Podgorica in an attempt to build a network of partner markets across southeast Europe.
In Greece, the Athens Stock Exchange (ASE) believes a regional capital market in southeastern Europe can be built not only through stock exchange operators buying stakes in regional bourses but also via sharing a common trading platform. ASE has already announced interest in becoming a strategic partner of the LJSE and the BSE.
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