Can blue chip list stop bourses' continuing slide?

  • 1999-11-11
Last week trading activity and share prices continued their downward slide on all three Baltic bourses. Compared with the week before, the slide in share prices was steeper in Estonia and Lithuania while trading was all but inactive in Latvia.

The week's top story, however, was the announcement of the intention to create a Baltic blue chip list, which was welcomed with cautious optimism among market specialists. In order to be listed on the Baltic blue chip list, of the approximately 100 companies listed on the main lists of the Riga, Tallinn and Vilnius stock exchanges only 14 currently meet the minimum market capitalization requirement of 15 million euros ($16 million).

Furthermore, market capitalization does not always reflect the liquidity of a company's stock. For example, the insurance company Balta, which formally meets the market capitalization requirement, is far from liquid. Its shares were not traded at all during this past October.

A blue chip list could also make it more difficult for companies unlisted on it to raise capital on the market, as foreign investors would probably pay closer attention only to the listed securities. This in turn is likely to make small- and medium-size companies balk at paying between 5,000 euros and 10,000 euros annually to have their securities on the local lists. It would put the bourses in an even tougher financial position than they are right now and once again raise the question of whether it makes sense to have three separate exchanges. However, talk about the demise of the national stock exchanges is rather premature. The idea of "better bad, but mine" may still be detected among the management of the national bourses and its market participants.

But the comment by a broker from Estonia's Hansapank should be noted.

A joint Baltic blue chip list could give foreign investors an incorrect perception of market movements in each country. The worry is that a fall in share prices in either of the three Baltic states would drag down the entire index and foreign interest in all Baltic states shares. Worries similar to Estonia's are being voiced in Latvia and Lithuania as well.

In addition, Estonian and Latvian market participants may also voice concern about tying themselves to Lithuania in view of this country's risky macroeconomic outlook, following the sale of Mazeikiai Oil to the U.S. oil concern Williams International.