TALLINN - The Tallinn stock exchange has fallen twice as much as the EU average during the recent global economic downturn, and the country now has the worst performing exchange in the European Union according to a new report.
Halifax Financial Services is a U.K. based company that tracks the prices of financial services and stock market indices. A recent report from the company found that the Estonian stock exchange has fallen by an astounding 34 percent.
Analysts say the credit mania has hit the nation harder than others and that it has had a dampening effect on the stock market.
"Basically, there was a pretty great and sudden rise in Tallinn's stock market, as well as globally, in July 2007. Then everywhere in the world stock markets got a negative feeling or sentiment, which was largely caused by the U.S. credit crisis," said Silver Laadoga from Trigon Capital.
Analysts say that they are not surprised at the raft of bad figures.
"It was to be expected for some time already. Estonia is an economy that has been largely built on credit, so from the moment the credit crisis started in the end of July last year this was an expected appearance," said Indrek Raud from Admiral Invest.
According to Laadoga the problem is exacerbated because many investors in the stock market are not local. Investors became more uncertain and careful due to the U.S. credit crisis and started to take money out, especially from developing markets such as Estonia.
The money has been repatriated to the United States. That country's downturn has been smaller than the fall in Eastern and Central European markets, which have fallen around 40 percent on average.
In July of last year people traded quite actively, but the amount of deals made has gotten very small since February 2008. Turnover is also small.
"It seems like foreign investors have pulled away a bit and there are not so many deals, at least in this period," Laadoga said.
The stock market still has some way to go before panic steps in. However, all the gains made in the last couple of years have already been lost. Price levels are about the same as they were in March 2005.
"The situation is quite badâ€¦ but the downturn has silently gotten milder and should start moving sideways. That moment doesn't have to be very far," Laadoga said.
The downturn has brought great losses to some investors, many of whom have fixed positions on the market.
"Considering the character of the Tallinn stock market, there are fewer deals and the ordinary investor think that one should sit at the bottom and wait for things to go better. So, in my opinion, the liquidity of the market is falling as well as the number of deals made," Raud said.
"Despite the recent financial market difficulties, the long term performance of stock markets across the EU has been strong. Over the past five years share prices have risen by an average of 17 percent per annum," said Martin Ellis, Halifax Financial Services' chief economist.
Prior to the recent losses, the Estonian bourses were in the top 10 performing EU Stock Markets from April 2003 until April 2008.
This year, however, has only been good to Slovakia, which was the only bourse in Europe to go up slightly.
Analysts say that we can expect more turbulence in the market to come.
"After a rise comes a fall, and then comes a rise again, but to predict the exact point is hard," Laadoga said.