GUEST COLUMN

The downfall of the Slovak capital market

Financial experts have been analyzing the worsening situation on the Slovak capital market, which has been under the scrutiny of financial investors since the second round of coupon privatisation was cancelled by Vladimír Mečiar's government in 1995. The Association of Bond and Share Traders in Slovakia (AOCP) has released an analysis of the main aspects and reasons of the downfall of the Slovak capital market. They share the opinion that minimum share ownerships in joint stock companies - common people usually owning only a few shares - have been drastically reduced or almost erased both by the restructuring of portfolios held by investment funds, and through sales by individuals. These changes have resulted in the continuous downward slide of the anonymous trading volume.

Financial experts have been analyzing the worsening situation on the Slovak capital market, which has been under the scrutiny of financial investors since the second round of coupon privatisation was cancelled by Vladimír Mečiar's government in 1995. The Association of Bond and Share Traders in Slovakia (AOCP) has released an analysis of the main aspects and reasons of the downfall of the Slovak capital market. They share the opinion that minimum share ownerships in joint stock companies - common people usually owning only a few shares - have been drastically reduced or almost erased both by the restructuring of portfolios held by investment funds, and through sales by individuals. These changes have resulted in the continuous downward slide of the anonymous trading volume.


On the other hand, privatization has triggered heavy transfers of privately owned shares, held by investment funds and majority package holders. These large groups obtained their stakes by means of direct trading, through the direct sales privatisation put forward by the Mečiar government. It is now often the case that major share packages are owned by one or a group of subjects, which allows them total control of the company and relieves them of the need to buy more shares to increase their percentages. In addition, the minority shareholders are disadvantaged because the majority shareholders often manipulate profit creation in their own favour, and place their individual interests above the interests of the company.

Apart from that, people have lost interest in putting their money into stocks which either never rise in price or even fall in value, and which therefore make very bad investments. Furthermore, undercapitalized companies don't take the opportunity to use the capital market to draw funds via share issues, because they are afraid of losing their majority package in the ownership of the company. Moreover, the insufficient support of the Slovak legislature is preventing stocks from being issued below their nominal value of 1,000Sk for all companies that were turned into joint stock companies in the first wave of coupon privatization. But there are certainly still ways to improve the capital market. First, domestic and more importantly international entities must regain confidence in the Slovak capital market. At present, even those international investors who invested in Slovakia before are either withdrawing part of their investments or withdrawing completely. The most decisive factors that stop foreign investors from investing in Slovakia are:

- Slovakia's unclear government policy
- low market transparency
- inflexible access to relevant information concerning joint stock companies
- ineffective market regulation
- extremely low liquidity and thus restricted opportunities for portfolio investments
- insufficient protection of the rights of minority shareholders
- an unfairly conducted privatisation, which causes the deformation of market prices
- high interest rates on the money market resulting from a restrictive central bank policy

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