BELGRADE (Serbia), October 27 (SeeNews) – Serbia’s capital market is failing to display its full potential due to lack of consistent development strategy, shortage of initial public offerings (IPOs) and inadequate regulations, the head of the Belgrade bourse says.
“One of the reasons why our market has not developed to the full is the lack of IPOs resulting from a discord over legal solutions, as well as the lack of a clear definition of the role of the capital market and a strategy for its development,” Belgrade Stock Exchange (BELEX) Director Gordana Dostanic told SeeNews in an e-mailed interview.
BELEX turnover fell 70.7% on the year to 189.4 million euro ($282 million) through September. In the third quarter alone, volumes fell 61.9% year-on-year, indicating that the contraction trend is abating.
If this positive trend continues, Serbia can expect the return of some foreign investors, which now make up about 35% of the stock market turnover, down from about 50% last year, Dostanic said.
“As Serbia falls into the category of frontier markets, if the positive trends from the third quarter continue, we can expect a somewhat higher presence of foreign investors,” she said. Frontier markets is a term used by investors to describe emerging markets.
“It is important, however, to keep in mind that in the climate of negative trends, frontier markets are the first ones to be deserted by foreign investors, as we could see last year and in the first half of the current year,” Dostanic added.
Once developed markets exhaust their growth potential, risk appetite rises letting available resources flow towards developing markets. This is followed by keener monitoring of activities on frontier markets, which “highlights investors’ readiness towards significant risk exposure on such markets.”
The bourse is unable to generate quality unless companies themselves fail to show good results, Dostanic explained.
“The most attractive companies to investors are those with high capital, significant revenues, rooted market position and practical application of high corporate management standards, as well as quality relations with shareholders,” she added.
The presence of foreign investors depends on the general risk level associated with a particular country and applied regulation governing the financial markets. Global rating agency Standard&Poor’s said in July it has affirmed Serbia’s ‘BB-‘ long-term and ‘B’ short-term sovereign credit ratings with a negative outlook, which reflects the likelihood of a downgrade.
The main challenges on the domestic market include shortage of liquidity and a low level of corporate management in companies whose shares are traded on the bourse.
“The fact that only five out of 1,800 companies trading on the bourse have undertaken the responsibility to inform the investment public says enough about the key problem at hand,” Dostanic said.
As far as forecasts for the trends on the BELEX in 2010 are concerned, Dostanic said it is an "equation with a lot of unknowns."
“The 2010 bourse trends will depend on how well new regulation will be implemented, the new listings of local companies and the development of the situation on global markets,” Dostanic explained.
($=0.6725 euro)