Newex Lifts Eastern Europe
HE current volatility of markets, and the apparent unwillingness of either private or professional investors to take big directional bets in them, might make some believe that the last thing investors are looking for at present is an opportunity in an asset class traditionally perceived as high-risk.
How much demand is there from western European and US investors for emerging market equities? Certainly, there is demand from the other direction, of eastern European companies seeking to raise capital from western investors.
Soon, we should be able to gauge the appetite for emerging Europe stocks. Last week the first trades were executed on Newex, an exchange created by Deutsche Bsrse and Wiener Bsrse to give European investors access to central and eastern European and vice versa.
Volker Potthoff, a member of the Newex supervisory board, said the new exchange is a synergy of interest and abilities. "We have created a new market together with one platform and regulatory structure. Why now? Simply, eastern Europe is getting closer to the European Union."
Newex commenced trading on Friday, with about 90 stocks listed from nine countries and with a total market value of about e45bn ([pound]26.5bn). Most of these are in a basic segment, but there are also two higher-tier divisions that have more stringent listing criteria. NX.plus is one of the "quality" segments and includes LukOil, Sibneft and Tatneft from Russia, Hungarian food processing company Globus and Austrian internet and telecoms solution provider S&T. This segment of eight companies is worth e16bn.
These companies are seeking exposure to investors who they hope will provide capital, as well as liquidity and price support for the stock, by making the shares in the companies easier to trade. Newex is based on the Xetra electronic architecture developed by Deutsche Bsrse and the exchange has signed up 20 market participants through which investors will be able to trade shares. These include WestLB, Greenwich Securities, Tullet & Tokio Liberty and Dresdner Bank.
Erich Obersteiner, a board member of Newex as well as Wiener Bsrse, believes there are compelling reasons for western investors to look at central and eastern European companies.
"We're convinced that this region will have very high growth rates and be a good area for developing companies," said Obersteiner. As a region, central and eastern Europe "will grow in the next 10 to 15 years at twice the growth rate of euroland".
The Communist "experiment", as he called it, failed and as a consequence a great deal of economic potential has gone unfulfilled. This view is borne out by a recent World Bank study on prospects for stock markets in "transition" economies, which forecast that Hungary will make the greatest advance, in terms of market activity, of any central or eastern European market. Projected market turnover will be worth 102% of gross domestic product by 2005, compared with 34% today.
Obersteiner says that current funding to meet the expansion required to service these markets will not be found from domestic sources. …