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The main vectors of development of the stock markets of CIS countries
Material posted: Grinyaev SergeyPublication date: 12-11-2010

To date, the development of world and regional stock markets going in the direction of greater interaction, which is characterized by the admission of foreign participants of the market, by tender of securities of foreign States and other trends in financial globalization. Increasingly, a growing number of market participants. The liberalization of stock markets of developing countries and CIS leading them towards integration in world and regional securities markets.

We can distinguish three possible vector of development of stock markets in CIS countries.

1. In modern trends in the interaction between the stock exchanges in both developed and developing countries trading platforms in the post-Soviet space are in the direction of cooperation. The first vector of development is manifested in two ways.

On the one hand, exchanges in the CIS are in the process of finding strategic partners. National stock markets are interested in cooperation with more developed stock exchanges (e.g., IPOs), thus manifested their focus on regional and world markets.

On the other hand, the post-Soviet space is the sphere of interest of foreign exchanges, development strategy aimed at geographical expansion and strategic partnerships with stock exchanges of the CIS countries.

2. The second vector involves the orientation to the national market without interaction with foreign markets.

3. The third vector is characterized by the cooperation of stock markets in the post-Soviet space. The economic interdependence of the CIS countries is of interest and the interaction between participants of the stock market of the Commonwealth.

Current trends indicate that the most likely development in the framework of one of the first two vectors.

To date, the interaction with foreign markets in the form of care of financial activity, consisting in the carrying out of the IPO companies from the CIS countries in the international market. Currently due to the economic development of the CIS countries and the need to attract companies additional capital becomes necessary at the time of the IPO. In recent years there is a clear tendency of the active desire of the companies of CIS countries to enter foreign markets. Only in 2005 the proceeds from the IPO in the CIS region amounted to 6.8 billion USD, which is more than five times the figure of 2004 (see Graph 1).

1 schedule of Proceeds from IPO of companies from CIS countries, mln.


Leaders in placements in major stock markets (London, new York) perform Russian companies, which account for 74% of proceeds from the IPO for CIS countries in 2004-2005, Kazakhstan has saved about 22%, while Kazakhstan is the only CIS country (along with Russia), the volume of raised capital of which exceeded $ 1 billion. in 2005, what was achieved through the placement of shares of Kazakh metals company Kazakhmys PLC in the international market[1]. Among other CIS countries only Ukraine takes a prominent position in the market of public offerings of shares (representing about 2% of income). On the other countries in the region account for about 2% of public offerings.

In addition to London and new York stock exchanges, is active in attracting companies from the CIS IPO on the Frankfurt stock exchange (part of the German holding company of the exchange), which is developing a strategy of cooperation with countries with transitional economies.

Among the ten largest IPO companies from the CIS, nine took place on the London stock exchange, and only one on the Russian MICEX.

Characteristically, in the CIS region, only a limited number of companies can afford a top trade site of the world. In these conditions, smaller, less-established companies are looking to market public offerings of shares in other countries. Significant in this case, the example of Ukraine. Agro-industrial company "Astarta Kyiv" in 2006, came out on the Warsaw stock exchange, having placed 20% of its shares and raising $ 95 million zlotys (31,6 million doll.). The experience of the company "Astarta Kyiv" can become an example for other Ukrainian companies.

The Warsaw stock exchange (along with other marketplaces of Europe and Asia, not belong to the world leaders) can act as an alternative location for medium-sized companies in the European CIS countries (mainly Ukraine), do not reach the standards of London, new York or Frankfurt stock exchanges.

Very active in the post-Soviet space of the Istanbul stock exchange (ISE), which initiated the establishment of the Federation of Eurasian stock exchanges, combining among others the majority of stock exchanges of the CIS. GFRC was the founder of the Baku stock exchange in 2000 It is also the largest shareholder of the Kyrgyz stock exchange.

Major companies wishing to IPO, will focus on leading stock exchanges of the world. The main competition between the exchanges in the CIS and Central and Eastern Europe will be held for middle size companies that can't afford an IPO on leading shopping sites.

However, the development of the stock markets of CIS countries raises the need for expansion investment companies in the post-Soviet space. For example, in Russia and other relatively developed markets of the CIS appear offices of the leading investment companies in the world. Increases the presence of mutual investment companies the CIS on the post-Soviet space. Especially strongly it manifests itself in the form of the presence of Russian companies in Ukraine, where one of the leading positions in the market occupied by Troika Dialog and Renaissance Capital[2]. Very active in the market and also Russian commercial banks, which play an important role in the stock market. President PFTS I. Zarya in the summer of 2004, commenting on the role of Russian commercial banks in Ukraine, noted that the Bank "NRB-Ukraine" Alfa-Bank "made a great contribution to the development of corporate bonds," and the Bank "NRB-Ukraine" in the sector of municipal bonds[3].

Besides Russian organizations are quite noticeable in the CIS Kazakh company EAST Capital, which has offices in the markets of all CIS countries. Expansion investment companies will facilitate the purchase of assets on the stock exchange in the interests of the companies country of origin. I.e., they can become agents for the realization of national interests.

Another possible model of interaction with foreign stock markets comes from their interest in cooperation with the region of the Commonwealth. As a rule, the greatest interest in fragmented stock markets of the CIS countries show mostly European stock exchange as a relatively large and average size. Used the policy of cooperation and penetration on the stock markets of the CIS is largely dependent on the specific policy exchanges that encourage the causes of expansion, and circumstances of the host party, etc. In General there are several main reasons that causes the interest of foreign exchanges in the stock markets of the CIS.

First, the relative underdevelopment of stock markets of CIS countries, their untapped potential and the high growth rates attract interest from overseas exchanges for the revitalization of the post-Soviet space. Cooperation with stock exchanges of the CIS countries can be an important external source of growth.

Secondly, the reason that causes the active interest of foreign stock exchanges to national stock markets is a strengthening IPO of local companies in foreign markets. First of all it concerns the companies operating in Russia, Kazakhstan and Ukraine. To a lesser extent, the markets of the countries of Transcaucasia, Moldova and Central Asia.

So, for example, the Frankfurt stock exchange, actively attract Western IPO, aimed at including countries with economies in transition. Already existing co-operation with the Frankfurt stock exchange, Ukrainian trading platforms, which is associated with the exchange of information about companies whose securities are publicly traded. Gradually join the process and less of a major Western exchange.

Thirdly, development strategy some exchanges aimed at creating a single market in the countries of Central and Eastern Europe. This policy was caused by several factors. On the one hand, fierce competition between European exchanges and the relative saturation of the industry hampers the development of stock exchanges. On the other - the modern trend of consolidation of exchanges leads to the emergence of large trading floors, which will undoubtedly have a negative impact on the competitive advantages of medium-sized exchanges, remaining aloof from the integration processes. In these conditions, the average size of a trading platform can strengthen its position through expansion in CEE and the CIS, which are distinguished by the relative underdevelopment of stock market, and low competition marketplaces.

Such strategy is typical for the Vienna stock exchange, which in 2004 acquired a majority stake in the Budapest exchange. Then to exchange the Alliance was joined by the exchange in Bratislava, Prague, Warsaw and Ljubljana. "The ultimate goal is to build a single holding company that would unite all the markets of Central and Eastern Europe", - stressed the co-chair of the Vienna stock exchange M. Blvd. As their goal, they see the annexation of Ukraine's trading platform to a consortium of exchanges.

Orientation to the markets of other countries and is also typical of the Frankfurt stock exchange. The failure of the unification of the exchange with Euronext have forced the German exchange to look for new market to absorb. According to the General Director of the R. Francioni exchange, the exchange is going to "actively participate in the consolidation of the sector both in Europe and beyond". Strategic region will be Central Europe and Asia. In particular, the exchange has plans on business development in Russia and is committed to working with KASE. The same strategy is shared by the Scandinavian exchange OMX.

Despite the increasing interest of foreign exchanges to the post-Soviet space, cross-border consolidation of trading platforms is not yet as promising because, firstly, national regulators and trading venues still firmly holding on to sovereignty, as evidenced by, for example, the requirements of Russia and Ukraine on the placement of the foreign IPO in the local market. Secondly, an obstacle to consolidation is the regulation of stock markets. Third, a significant difficulty are the technical issues of consolidation.

Among all CIS countries to the greatest extent can be prone to absorption of small national exchanges in those countries where the poorly developed stock market to obtain external impetus to its development.

However, not only foreign exchange interested in expansion to the CIS markets. There are examples of interaction between trading platforms in the post-Soviet space.

Examples of mutual participation in the capital markets in the CIS region are still few and are the exception rather than the rule. In particular, RTS has recently established a joint Russian-Ukrainian exchange. Another example concerns the acquisition of 10.6% of Charter capital of the Kyrgyz stock exchange of the Kazakh trading platform, which helped to establish the new software. The payment for the service produced by the stock exchange.

In our opinion, the emerging trend of m & a and equity exchanges of the CIS countries will develop for several reasons. First, significant increased competition for the status of a regional trading platforms in the CIS can be deployed between the Kazakh stock exchange and the Russian trading platforms. Secondly, attempts of expansion of foreign exchanges in the post-Soviet space are forced to intensify the activities of the national exchanges in the markets of each other. Third, financial integration in the Eurasian economic community and the CIS involves the implementation of measures to increase cooperation stock markets and their harmonization. Fourth, cooperation exchanges of post-Soviet countries, in the form of an International Association of exchanges of the CIS.

There are also some internal reasons which are pushing the national stock exchanges of the CIS to cooperate with foreign trading platforms. Low supply of capital and the lack of financial resources within the country can also contribute to the integration of trading platforms and market institutions in international or regional patterns. In this case the example is the KASE, which became a trading floor of the Regional financial center of Almaty, and signed a cooperation agreement with London stock exchange, memoranda of understanding with Frankfurt, Seoul, Singapore and Hong Kong stock exchanges.

Ukraine also attracts foreign partners to develop the national capital market. So, the national Depository of Ukraine and the State Agency of Ukraine on innovations and investment signed a Memorandum of understanding with the Vienna stock exchange, its clearing house and the Austrian securities Depository. The agreement provides for the establishment of a market segment on the Vienna stock exchange for 20-25 investment Ukrainian companies, providing their access to European and international investors through the trading system of the exchange. This collaboration will also help develop the infrastructure of the Ukrainian regulated markets according to European standards; to participate in the creation of the Central Depository and Central clearing house in Ukraine; to bring Ukrainian legislation into line with European Union legislation; to implement international marketing and new products in accordance with international standards and transfer know-how to Ukrainian companies[4].

For the countries of the FSU and internal factor that contribute to the establishment of cooperation between exchanges, both at the regional and international level. Because of its relatively recent establishment of stock markets of CIS countries, many countries need a technological improvement of exchanges of adaptation of foreign experience of functioning of the stock market. In these circumstances, the Western exchange participated in the installation of various technological equipment on the stock exchanges of the CIS.

Based on the presented data we can conclude about the possible directions of development of stock exchange markets of CIS countries.

In future, we expect changes in the structure of the stock market. We believe that this trend will manifest itself in two ways. On the one hand, the possible consolidation of the existing trading platforms in the CIS. With another – it is possible the emergence of new exchanges, mostly in countries where they do not exist (Tajikistan, Turkmenistan). At the national level, based on international experience, is more likely to dominate the trend towards consolidation.

It appears that the number of trading platforms will shrink, but survive will be the most technically advanced and modern requirements to the infrastructure of the stock market. The lowest survival prospects exist in the stock exchanges of Transcaucasia, Moldova, Kyrgyzstan, the stock markets of these countries are in the process of development and many attempts to reform them have failed. National trading platform of these countries can become object of absorption, a more advanced and large-scale trading platform from near or far abroad.

This situation is typical, for example, for Armenia, among the possible partners of which are the Russian stock exchange, as well as European. In particular, the Armenian stock exchange is interested in OMX, which already has developed a package of proposals, which includes about 70 events, involving legislative reform. The acquisition process will be staged: the first stage is to transfer 35% of the shares, then 50%, and at the last stage, 100% of the shares and the Depositary Ahmeh. After completion of this process, according to the forecasts of the Central Bank of Armenia, the level of capitalization of the Armenian stock market will grow to $ 5 billion. The Central Bank of Armenia intends to abandon the old model of the action of stock exchange and Depository, as a self-regulating body, and move to the European model, involving a private stock exchange and the Depository[5].

It is also expected the Russian stock exchanges in CIS countries. An example mentioned RTS and KASE serving shareholder of the Kyrgyz stock exchange.

Another possible direction of development of the stock markets of the CIS countries will be the establishment of new trading platforms. Recently it became known about the intention of the holding OMX Nordic, the stock exchanges "St.-Petersburg" and group RX of venture companies establishment of an International stock exchange "St.-Petersburg" (IXSP). IXSP will primarily focus on issuers of small and medium capitalization, which will provide access to international capital. On the new stock exchange will be traded 8-10 "blue chips" and shares of the companies of the second echelon[6].

There is also a plan to create in Russia a Stock exchange high technology (pbvt)[7], which is the equivalent to NASDAQ and plans to attract investment in the development and implementation in the Russian economy of high technology

In the future it is not excluded the creation of new trading platforms, oriented to medium businesses or high-tech companies, both in Russia and other CIS countries. Probably also the development of stock markets in Tajikistan and Turkmenistan, the result will be the establishment of marketplaces in these countries.

Another growing trend will be the increased interaction between national investment firms with stock exchanges. For example, several Ukrainian investment and financial groups (including E-volution and Socrates) have signed a cooperation agreement with the Warsaw stock exchange. They will act as partners of the exchange and to assist Ukrainian companies in the IPO on the Polish market. It is also noticeable that such cooperation does not require a subsidiary office in the home country of the exchange.

In the long term is expected to strengthen bilateral and multilateral cooperation of stock exchanges of CIS countries, both among themselves and with foreign exchanges for the confrontation and the competition from other stock market participants.

Today stock exchanges of the CIS are members of various regional associations. In particular, in the framework of CIS in 2000 was established by the international Association of exchanges to coordinate efforts to develop organized financial markets in accordance with international standards. The company is planning to expand its membership. So, in February 2007, a member of the IAB became PFTS. After joining PFTS in the IAE CIS includes 22 organizations from 9 countries, performing professional activities in the service of mutual financial turnover, transactions with currency, state securities, stocks and corporate bonds, derivatives.

The majority of stock exchanges of CIS countries are members of the Federation of Euro-Asian stock exchanges (for this Association has not only joined the Russian exchange, Ukrainian PFTS, and a number of smaller exchanges Kyrgyzstan and Uzbekistan). The Federation plays a significant role of the Istanbul stock exchange.

Will be actively developing bilateral cooperation exchanges, the purpose of which may be the exchange of information, access of foreign companies to the listing, the improvement of the technological level of the exchanges, etc.

In addition corporate methods of interaction of participants of stock market (equity capital, the cooperation with investment companies, alliances, memoranda of cooperation) on the development of the stock markets of the CIS countries will be influenced by the formal initiatives of States, as well as their regulators, focused on enhancing the interaction of stock markets as multilaterally within the framework of integration blocs of the EurAsEC and the CIS and in bilateral format. In particular, the Federal Commission for the securities market of Russia (FCSM) has already signed Memoranda of cooperation and exchange of information with regulators of stock markets of Moldova, Ukraine, Uzbekistan and Belarus, as well as with foreign States, particularly great Britain, Cyprus, Yugoslavia. A formal integration of stock markets should be to increase the openness of stock markets on a regional scale.

As for Rossi bothered. the economic interests of Russia in the CIS region are primarily related to the expansion of Russian business in the post-Soviet space in different economic sectors: extractive and manufacturing industries, the service sector, financial markets, etc.

Threat to economic interests of Russia is first of all the influence of noneconomic factors on the development of business in CIS countries. It seems to us that a significant obstacle to establishing bilateral and multilateral cooperation, exchanges and stock markets in different countries will be politically motivated. In recent years Russia has had complicated relations with a number of CIS countries, which manifest themselves in different economic wars, for example, in 2005-2007 swept a series of trade wars with Ukraine, Moldova and Georgia, have played the "gas war" with Ukraine first, and then with Belarus. A number of CIS countries at the present time is towards integration with the Western countries (Ukraine, Moldova, Georgia, Azerbaijan).

In these circumstances, in view of the considerable influence of political factors on the economy are not eliminated various restrictions on the interaction of stock markets, including implicit. In particular, it is not excluded a hostile approach from national regulators to the expansion of the Russian stock exchanges in the CIS.

Today, it is becoming clear that integration within the CIS does not reach most of their goals. What will be the reform of the CIS is still unknown. However, despite the fact that considered the plan to enhance financial integration in the CIS for its success in the coming years is unlikely. In our opinion, multilateral cooperation stock exchanges and markets within the integration groupings will go in the direction of the exchange of information, establishment of pilot legislation. The real integration of stock exchanges will take place bilaterally.

Exacerbated the struggle between various foreign exchanges for influence in the CIS. Although it is not a threat to the economic interests of Russia, however, this may significantly complicate the integration of the Russian stock market with the CIS countries. For example, European exchanges could take the most promising for Russia the Ukrainian market. Serious competition is and the Kazakh stock exchange, which became the main trading floor of RFCA.

Thus, the development of stock markets will be like in the direction of integration with Western stock exchanges and within the region. The main threat would be deterioration in political relations of Russia with some countries of the CIS that will immediately affect business interaction.

[1] Look at IPO – trends, opportunities, solutions. Ernst&Young, may 2006.

[2] read More about the presence of Russian companies in CIS countries, see paragraph 3.1.

[3] We are counting on Russian investors // national Banking Journal, 2004, №8.

[4] Ukrainian news, 2006, August 28.

[5], 2007, February 27; IA REGNUM, 2007, February 27.

[6] the invasion from the North // Vedomosti, 2007, March 29.

[7] Shareholders fbwt are dozens of research centers and universities of Russia.

Tags: Russia , CIS

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