Over the counter trading at the Bratislava Stock Exhange in its heyday 1995.
foto: Richard Lewis
Trading in listed shares fell to 5.2 billion Slovak crowns in 1999 from 14.5 billion in 1998 and 45.4 billion the year before that. The market has continued stagnant in 2000; on Wednesday January 12, no stock was traded and overall turnover fell to $15,900. The official SAX index was unchanged at 78.25, near its all-time low.
"Until the middle of 1999 there was still some stock trading with international clients," said Miloš Božek, an analyst at J&T Securities. "But since then the market has been almost dead. There's not much optimism around these days, and the only thing that can help is if new issues are floated on the BSE."
Božek added that as a result of the drought in share trading, formerly his firm's core business, J&T had begun to move into debt financing in an effort to survive. The company bought a Czech bank at the end of 1998, renaming it 'J&T Bank', to capitalize on the "great interest, especially in the Czech Republic, in SKK denominated bonds."
Slávia Capital was perhaps the first brokerage house not owned by a bank to make a move into investment banking activities such as debt financing and advisory mandates. Slávia's Martin Kabát explained that after a wave of privatisations created an initial stock market boom in 1994, Slovakia's more than 100 brokerages had dwindled to around 20 struggling houses by late 1996. To make matters worse, the Slovak owners of the newly privatised companies ignored the stock market because they were afraid minority investors might dilute their majority stakes.
"In 1996, many companies went from classical loan agreements with banks and started to issue bonds," Kabát said. "The bonds were listed on the BSE, which was attractive and image-making for the companies, while the banks were also in favour of the switch from the cash management point of view, because it meant they didn't have to create yearly reserves against loans."
At first, Kabát said, banks had virtually monopolised the bond market, but as banks themselves ran into problems, many corporates turned to foreign markets to place their bonds, opening the door to private brokerages like Slávia.
Slávia also made a big leap into trading government paper, and by 1998, its trading in state treasury bills totalled 396 million crowns ($9.7 million), almost 80% of the firm's turnover.
But no matter how aggressively they diversify, Slovak private brokers are still small fish compared to the brokerage operations of Slovak banks. Because of their cash resources and foreign contacts, banks still underwrite over 90% of state bonds, according to Kamil Katrenič, an equity analyst at Tatra Banka.
Moreover, because over 90% of turnover on the BSE is in bonds, according to Oľga Dlugopolská, head of the analysis and statistics department at the exchange, banks have a virtually unassailable position among brokerage firms.
"Bonds are really active, and our banks are bond specialists," said Dlugopolská. With 34 government bonds issued in each of the last two years, in a nominal value of 67.5 billion crowns, the bond market at least was healthy, she added. "The government also plans to issue a bond a week in the first quarter of this year, so it looks like last year's pace will be maintained," she said.
But Katrenič disagreed, arguing that the government was likely to issue fewer bonds and at lower rates than in the past. "With the financing they will get from Eurobonds, the amount issued will probably be lower," he said. "More importantly, interest rates will likely fall below 10% by the end of this year, and interest rates are where we make our living. So life won't be as simple as it was in the past for us either."
On January 11, yields in an auction of one-year state bonds fell to 12.2% from 13.1% the week before. Ján Tóth, senior economist at the ING Barings investment bank, has predicted that one-month interest rates may fall as low as 6% by the end of the year from the current 10.9%.
All brokers, finally, agree that activity in stock trading will not pick up before 2001 at the earliest, when the first shares in lucrative 'strategic' state firms are floated. "This market needs not only better legislation but also investors," Dlugopolska said. "Unfortunately, the attention of foriegn investors was diverted to other markets by the activities of the Mečiar government. The privatisation of strategic companies is the only thing that can help us now."