LHV Direct is not the first broker to broker foreign stocks, but it is definitely the cheapest and, according to specialists, it may bring down the high prices of U.S. stock transactions in Estonia.
LHV Direct also offers financial news and comments from experts on its home page at www.lhvdirect.com. After integration with a popular news portal Delfi, the site is also available on www.delfi.ee page, which boosts the number of visits to the LHV Direct page.
According to Rain Lohmus, one of the owners of LHV Direct, there is no commission on trading U.S. stocks until the end of October and after that it will cost 199 kroons ($11) per transaction. LHV Direct is the first Estonian Internet broker, established six months ago by the firm Lohmus, Haavel & Viisemann (LHV).
Today the e-portal has about 300 clients, 100 of whom are active traders, said Lohmus. He said that when he was planning to establish an Internet brokerage he had to keep three things in mind that kept investors from investing. First, he said, local investors were not satisfied with the small diversity of stocks on the local market. Secondly, trading with foreign stocks was expensive, and the last but not the least obstacle was lack of knowledge of foreign markets.
"The U.S. stock exchange does not consist of U.S. stocks only. There are thousands of foreign stocks noted on the U.S. stock exchanges," said Lohmus. "And there should be no fears about the transparency of foreign companies. There is more information on the Internet about American stocks than there is information about the Estonian stocks on the local market."
Today, trading through LHV Direct comprises almost one fifth of the turnover of the Tallinn Stock Exchange and the number of transactions is almost 80 percent of the total number of transactions per day, said Robert Kitt from LHV Direct.
"In the past few days an average of 55 transactions in the volume of one million kroons were done each day," said Kitt.
He said that through the local stock exchange one could trade only with about 20 different stocks, while their new service allows to trade with about 10,000.
Lohmus said that the most popular shares during the few weeks of their trading have been Cisco, Nokia and Ericsson. Securities specialists from other investment banks agreed that Scandinavian stocks such as Sonera, Ericsson and Nokia, which are also noted on the U.S. stock exchanges, are very popular among Estonian investors.
"Elcoteq, a leading European electronics manufacturing service company, which also has a subsidiary in Estonia, is popular in Estonia because people know it," said Lauri Lind, director of capital markets at Hansapank.
At present Hansapank is offering one of the most expensive U.S. stock transaction services in Estonia, but Lind believes the prices will come down in a month or two.
At Hansapank there is a 0.5 percent commission on each transaction with U.S. stocks, with a minimum of $100. He said that in case of several transactions it is possible to get discounts.
Hansapank was also the first investment bank in Estonia, starting with intermediate Swedish and Finnish stocks in April 1999 and U.S. stocks some months later. Today Scandinavian stocks make up about 70 percent of the total number of foreign stock transactions at Hansapank.
"I believe that Estonians are investing more in the Baltic stocks than abroad, but the interest towards foreign stocks is increasing day by day," said Lind. "I also believe that the cost of transactions with Western stocks will come down close to the price level of local transactions, which is 0.25 percent per deal or a minimum of 125 kroons," said Lind.
Lind said that LHV offers a good service, but it could still be improved.
"At LHV clients have to transfer money to LHV account in advance but most clients do not like that," said Lind.
Trading with U.S. stocks through Uhispank has a 0.5 percent commission, and a 300 kroon minimum.
Jaak Raivo, director of capital markets at Uhispank, said that U.S. blue chips, for example IBM and RedHat, are very popular among Uhispank investors. At present Uhispank investors hold about $400,000 worth of U.S. stocks and about 10 to 20 trades are made per day. At Hansapank about 10 transactions are made per day, said Lind, but it depends mostly on the news of the day.
Raivo said that although Uhispank's service is a little bit more expensive, the length of the transaction itself might sometimes make for more profitable deals.
"At LHV the order is entered twice, once by the client and then by the broker. I do not know whether the client gets the share for the same price that he saw when he started the transaction or not. The time spent on the transaction can sometimes turn into a big loss," said Raivo. "At Uhispank the client calls us, gets some advice on the phone and the transaction is done in five seconds."
He believes that the clients of the bank are satisfied with their bank and lower prices will not make them go over to the competition. Unlike Hansapank, it is not possible to buy U.S. stocks through Uhispank's Internet bank. Raivo said that there is no demand for these services at present and usually about 10 percent of all transactions that come in via the Internet are falsely entered.
The purchase of stocks through an investment bank Trigon Capital costs $30 per transaction. According to Kristel Kivinurm, head of the securities and brokerage department at Trigon, the cost of the service is not important when big transactions are made because each second is important.
"The clients of LHV do not get personal support from the broker. They should know the market; know what they want to buy or sell and when. In Estonia the number of people who know foreign markets is small," said Kivinurm.
She said that the interest towards foreign stocks is constantly growing in Estonia because the opportunities to invest on the Baltic markets are limited.
"If the companies listed on the local stock exchange are taken over by foreign investors and other companies do not replace them on the exchange, we might find one day that most of the local money has gone abroad," said Kivinurm.
Kivinurm did not want to disclose the number of foreign transactions made at Trigon Capital, because she believes that it is not an important issue compared to the volume of the deal.
Veikko Maripuu, an analyst from Suprema, said that due to the good quality of their services transactions with U.S. stocks cost 0.5 percent or a minimum of 500 kroons at Suprema.
He said that their services do not suit small investors well and more than half of the investments at Suprema are portfolio investments.
Like his competitors he claimed that an investor needs information from his broker when purchasing U.S. stocks.
"LHV Direct is a good place to trade when the client knows what he is doing. Estonians do not know the U.S. market well. They have a better knowledge of the Scandinavian market," said Maripuu.
"At Suprema more than 75 percent of the sales come from transactions with Scandinavian stocks, mostly Finnish stocks," said Maripuu.
He said that in general LHV has established a good service for which there is a demand in Estonia and which widens the investment opportunities of local people.