In line with most other European exchanges those of eastern and central Europe have suffered a disappointing year. Although traditionally less dependent on hi-tech stocks, nonetheless they caught a cold when the larger western exchanges caught a cold earlier this year. There are, nonetheless, some bright spots with at least a couple of exchanges forging strong recoveries.
It is often the case that emerging markets face a number of lean years for every one good one, and investors are naturally wary. The Warsaw exchange is a classic example of how the year has gone in the region. After a decade of steady growth that saw the WIG rise from a nominal 1,000 points mark to over 19,000 in the 10 years to 2000, the past 18 months tell a very different story. To the end of the third quarter the WIG had ditched more than one third of its value. This left a market value of the 217 participating companies at a little over $20bn. No particular sector bore any disproportionate responsibility with losses evenly spread through industry, finance and services.
The final quarter has seen a slight upturn, fired in part by a number of initiatives from the management board. In October the WIG20 rose by 3.48% and the TechWIG moved back up by a little over 5%. Equity trading reached a year high, and significantly trading in futures set a new all-time record. Encouraged by this the board announced at the end of November that a new derivative instrument, the MiniWIG20 was to be launched. Other encouraging news was the decision by the European Investment Bank to issue 300,000 unsecured bearer bonds under its Polish Public Debt Issuance Programme, and trade them on the Warsaw exchange at a nominal value of s800m. The EIB thus became the first foreign issuer to list on the exchange.
Whilst the western exchanges talk of consolidation it is almost unnoticed that similar moves are underway further east. In August the Warsaw Exchange and the National Stock Exchange of Lithuania signed a Memorandum of Co-operation. The deal covers not only sharing of information and marketing, but also sharing of technology and harmonisation of market regulations, which could mean introducing the Warsaw trading system to the Lithuanian exchange.
This deal takes place against the background of the news that the New Europe Exchange (NEWEX) was launching continuous trading supported by market makers in selected eastern and central European stocks. Eight companies were identified for the November launch of the service, three energy companies from Russia, MATAV the telecoms giant, MOL and ATP bank from Hungary, the Polish telecom company TPSA and the Czech utility CEZ.
A sign of the powerful attraction of NEWEX for dual listing for the larger eastern European companies is the fact that these eight companies represent a market capitalisation of almost s49bn. It is also a dramatic coup for the Vienna-Frankfurt project as the companies are expected to represent an average monthly turnover of s180m at NEWEX, some 58% of total turnover. As NEWEX point out they are the only exchange where central and eastern European stocks can be continuously traded in euros on a fully electronic system.
There has been a certain ambiguity about the exact role of NEWEX since its inception a year ago. Although superficially offering dual listing, it is clear that the technological edge it has over other exchanges in the region may make it the key to consolidation in the area. Although Frankfurt and Vienna have always denied any grand plan, and exchanges such as Budapest and Warsaw extended a warm welcome to the launch of NEWEX, there does seem to be an underlying strategy which mirrors the consolidation process in the west of Europe.
Two of the most progressive exchanges in the region are those of Prague and Ljubljana, and both have posted excellent results towards the end of the year. For the first time in the history of the Prague Stock Exchange the monthly trade value exceeded CZK 300bn (E9bn). In November the total monthly trade value reached the record value of CZK 303.085 bn.
The leading Ljubljana Stock Exchange index SBI20 also reached its record history value for the second time this year November. It climbed to 2.039,79 points and thus exceeded its previous record 2.035,76 points of 7 September this year. The reason for recent optimism on the Ljubljana Stock Exchange lies partly in the increased interest of foreign investors in Slovenian companies, which has been experienced lately. This is largely due to the lifting of restrictions on foreign investors, by a decree of the board of the Bank of Slovenia. As a result of this foreign portfolio investments in long- term securities in Slovenia were liberalised as of July 1, last year. The Central Bank has abolished all restrictions and additional Central Bank’s costs associated with custodian accounts for non-residents. This move should be considered a change of policy by the Bank and suggests it is keen to attract foreign investors to the exchange.
The Slovenians have also been very active in forging alliances, and unlike some other eastern exchanges have moved over broad horizons. In 2000, a memorandum of Co-operation was signed with the London Stock Exchange. This confirms Ljubljana as one of the more pro-active of the region’s exchanges. Last year a similar accord was signed with the Macedonian exchange, aimed at developing new systems and dual listing.
The exchange has already finished three projects involving sale of systems and know-how to the Federation of Bosnia and Herzegovina, to the Republic of Srpska, as well as the Republic of Macedonia. Serbia and Montenegro are also being targeted, and the board believe there are markets to be exploited further south. It seems clear that just as Slovenia surprised many in its embrace of EU values, its exchange looks set to be a key player in the consolidation not only in the east but also across Europe.

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