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Serbia, Improving market liquidity is key

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It is difficult to find an investor, expert or analyst who would be satisfied with the current state of the capital market in the Adria region. No one can deny that these markets are quite illiquid. Is consolidation one of the possible solutions? The Ljubljana and Zagreb Stock Exchanges already operate as part of the same group, and the Zagreb Stock Exchange is the largest shareholder of the Macedonian Stock Exchange.

Therefore, there is already a certain degree of consolidation in the region at the level of stock market ownership. In addition to the above, the Belgrade Stock Exchange and the Banja Luka and Sarajevo Stock Exchanges in Bosnia and Herzegovina operate in the region. In terms of turnover, the Ljubljana Stock Exchange leads the way, with a turnover of 431 million euros last year. Only slightly less – 40 million euros – or 392 million euros was the turnover on the Zagreb Stock Exchange.

“If we wanted to realize the real role of the capital market in the entire region, it would be necessary to create a single capital market that would be significantly more attractive to institutional investors outside the region,” believes Damir Bećirović, economic analyst and professor at the International Business and Information Academy in Tuzla.

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According to his opinion, this would create preconditions for the possible exit of private regional companies to the capital market, which would increase the dynamics of both supply and foreign demand for financial instruments. This would improve the liquidity of the market, which is currently its main shortcoming,” Bećirović points out.

Perhaps economically efficient, but difficult to implement

Danijel Delač, a member of the board of the Croatian brokerage house Intercapital, notes pessimistically that the development of the capital market in the region is practically impossible in the future due to the carelessness of certain governments. “Without tax breaks and privatization of state-owned enterprises, the development of local capital markets is questionable,” says Delac.

As he continues, one regional stock exchange, or at least a regional stock exchange for the largest companies in the region, would make a lot of sense, but it is difficult to implement in practice. “You have to be aware that the region is very heterogeneous: we have different currencies, different transaction settlement systems, regulations and trading systems are also different,” says Delač. He sees a possible solution in the so-called double listing of the most important “blue chips” from the region on one of the stock exchanges.

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As the Zagreb Stock Exchange points out, many other countries generally have their own stock exchange. “It is difficult to find an example of one stock exchange ‘serving’ several countries. It might be more efficient from a business or economic point of view, but the regulations significantly limit this,” they explain. According to them, trade is not the only activity enabled by local exchanges; transparency, which is always provided in the local language, is also key.

At the same time, Zagreb recognizes that various processes of consolidation are certainly inevitable in this industry. “Strengthening market efficiency can be implemented in other ways: in the world we have examples such as the Intercontinental Exchange (ICE), a holding company that manages 12 regulated markets and market operators and clearing houses,” they state. It is the same with Euronext, a pan-European exchange that operates exchanges in Paris, Amsterdam, Brussels, Lisbon, Dublin, Oslo and Milan.

Exchange costs are negligible

“In its sense, the stock exchange represents one of the basic building blocks of the capital market. The importance of the local stock exchange lies primarily in its proximity, adaptability and accessibility to local participants,” emphasizes Andraž Aš, Head of Regulation of the Ljubljana Stock Exchange. According to him, the essential task of the stock exchange is to support domestic issuers, investment companies and end investors. “At the same time, the costs of the stock market are negligible in the total costs of the capital market, it is almost certainly the cheapest institution on the market,” emphasizes Aš.

The Ljubljana Stock Exchange is aware that capital markets are global, so it strives for greater integration into regional, continental and global markets and their infrastructure. According to Asch, the relatively low awareness and non-use of the services of local stock exchanges in the countries of the Southeast European region is much more the cause than the consequence of the relative anemia of local stock exchanges.

“Whether there is one exchange or more is a relatively unimportant question from this point of view, because the listed companies are different. Therefore, there is no liquidity, and even a merger would not significantly increase it,” he explains, adding that the general interest in trading is simply too low.

Even in the SIJ company, the work of the Ljubljana Stock Exchange is recognized as meaningful, as it helps to overcome the limited capacities of the Slovenian banking system. “In this way, compared to foreign investors, Slovenian investors get more information about Slovenian companies and are therefore ready to invest more and get a lower risk premium,” says Igor Malevanov, vice president and executive director for finance at SIJ.

As he explains, by entering the capital markets, the group acquired new sources of financing, which enables them to optimize the structure of financial assets, with until recently still favorable sources of financing. Thus, in the last nine years, they became one of the most recognizable and significant issuers of long-term securities on the Ljubljana Stock Exchange, where they issued bonds worth 173 million euros and corporate bonds for 209 million euros.

“We want both the Ljubljana Stock Exchange and the state to further promote the Slovenian securities market, which would increase the number of investors and provide additional liquidity to the economy,” says Malevanov.

Greater bureaucracy and costs

One of the largest information consulting groups in the region has a different experience with going public: Datalab Technologies. They decided to enter the stock market because in 2003 they invited employees to become owners. After 20 years, 40 percent of the company is in the hands of employees, which is why in this period the question of the liquidity of these shares was raised.

They believed that the best option was to enter the organized market. “Due to significant fluctuations in the share price (and last but not least, the suspicion of Slovenian institutional investors), the stock exchange did not bring the expected results in creating a stable employee share market, nor did it improve access to financial resources,” explains Andrej Mertelj, the company’s executive director.

According to him, the scope of work, as well as the costs in the initial phase, were acceptable and sustainable. “Unfortunately, things have changed drastically in the last few years. The increasing bureaucratization of management, as well as additional requirements, have exceeded acceptable costs,” says Mertelj. This led to a situation where employees were burdened with significant costs and red tape around ownership. He sees even bigger problems in the pressure to introduce ESG standards into the company’s operations, which are often in conflict with their primary goals.

“The separation of the first and entry quotations is not significant enough. The question is whether the Ljubljana Stock Exchange can help similar smaller joint-stock companies in another way, because the death of the Slovenian market is guaranteed without new entries,” predicts Mertelj.


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