Quo Vadis?: Baltic Stock Market Overview 2000.-2018.

The year 2018 has passed and now we can make some comparison of how it looks versus other years. In this series of articles, we would like to explore several issues which tell us quite a story about NASDAQ Baltic Stock Market, and these are: size of the companies (market cap), breadth of the market (number of companies), and, finally, the market activity proxied by number of trades made by investors and stock market turnover.

For analysis we take pan-Baltic stock market, which consists of: Baltic Main List (these are the companies with the best liquidity and reporting quality), Baltic Secondary List (companies, which lack free float, reporting quality or size) and First North Baltic (companies, which are new and small in size).


Today we would like to look at Baltic Stocks Market Cap, which gives us an idea of how large is the market overall.


Figure 1: Baltic Stocks Market Cap On The End Of Year

Source: Alphinox, NASDAQ Baltic


At the end of 2018, Baltic Stock market was valued at 6.63 billion Euro, compared to 7.58 billion Euro a year before (-12.5% difference), as poor stock performance in the second half of the year made downward corrections to the full year result. It is astonishing to see that 14 years ago Baltic stock market’s value was as much as 10 bn Euro and even reached 13.89 bn EUR during the stock market rally of 2006, when investors were willing to pay almost any price for Baltic securities.


The Baltic market has been gradually growing its size since 2011. Is 6.63 bn Euro high or low price to pay for all 71 companies listed on Baltic Market? To compare, Estonian government budget for year 2019 is 11.3 bn Euro, which is almost two times larger. Latvian State budget for 2019 is smaller in size, standing at 9.2 bn Euro. Therefore, it turns out that money for Baltic stock market could easily cover Estonian State expenditures for half a year! Or, if you are a football fan, 6.63 bn Euro can buy you almost two Real Madrid football clubs.


But of course, not all companies in Baltic market are valued equally, just like in team sports – some team members are more valuable than the others. Similar picture can be observed within the Baltic stock market, where Top 10 biggest companies by Market Cap account for about 64% of total market making it very concentrated on the bigger players. The largest companies as of 2018 end were Tallink (Shipping) with 10%, Telia Lietuva (Communications) 9.6% and ESO (Utilities) 8.6%, while the smallest one, Baltic Telekom (Communications), had only 0.003% weight.


Figure 2: Baltic Stocks Market Cap on 31.12.2018


Source: Alphinox, NASDAQ Baltic


One thing is to know how valuable the market is, while the other is to know what impacts that value, and these are two things: stock price fluctuations and the number of listed companies, which is impacted by stock exchange arrivals (newly listed companies) & departures (delisted companies).


Figure 3: Number of Companies on Baltic Stock Market at End of Year

Source: Alphinox, NASDAQ Baltic


We can see that at the end of 2018 there were 71 companies on the Baltic market. Just like with demographic situation in the region, where the number of people decreases (negative birth rate or emigration), similar story can be told about the Baltic stock market, where there is a clear downward trend in the number of constituents. Overall that means that more companies are leaving stock exchange than are coming in. The record number was seen in 2007, when 101 companies were on the stock market. Interesting thing can be spotted, if we look into Market Cap (chart is in the previous article) and Number of companies for 2005–2007 period. What we see is, that many new companies joined the market during the worst possible time (2007), just shortly before the financial crisis. Investors that have already owned the shares prior to the market debut, saw it as a good thing because they could sell their stakes at higher prices and the companies could raise more money, while for the new, eager to buy investors — it could have become a frustration.

Or quoting Benjamin Franklin’s words ‘’pay too much for the whistle’’ — paying much but getting little.

But how much money is changing hands on Baltic stock market every year?


We looked simultaneously at two things: total stock market turnover and Number of trades.


Figure 4: Total Stock Market Turnover and Number of Trades

Source: Alphinox, NASDAQ Baltic


In 2018, market turnover was 323 mn Euro, and 126 thousand trades were made during 2018. In comparison with the past records, it is quite a small amount. Even in the very beginning of the millennium (year 2000), market Turnover was around 500 mn Euro with almost the same amount of trades. In years 2001 and 2002, we can see that investors left the market, scared away by the dot-com bubble. To a certain extent it is rather fascinating, that even before the start of digitalization era and easy access to trades (as it is nowadays), trade number back in 2000 are similar to the ones 18 years later.

Was a stock exchange a ‘’sexy’’ thing for Baltic investors back then?

Well, it definitely was a hype from 2003 to 2007! Selling shares back and forth in 2005–2006, Baltic investors pushed yearly turnover over 2 billion Euro mark in value (these years must be sweet; very sweet for brokers of Baltic banks that received fat commissions). It is 7 times more than the turnover today! Speculation around Baltic shares was a popular thing and the number of trades sky-rocketed to 389 thousand in 2007, just before the crisis hit. And then, when the bubble finally burst, many investors left the market taking their money along. Interestingly enough, many companies that investors loved to trade particularly (e.g. Olympic Entertainment Group, Latvijas Kugnieciba, Ukio Bankas etc.) have also left the market or went bankrupt, which in turn dragged down the Total number of trades.


And how Baltic Stock market looks performance wise?


Figure 5: Performance of OMX Baltic Benchmark Indices

Source: Alphinox, NASDAQ Baltic


As everything is inter-linked – stock price, Market Cap, Turnover, no wonder really that we can see the similar situation on the Performance chart.

It is worth to point out several things:


  • Baltic stock market still has not recovered from the financial crisis of 2008 (OMX Baltic Benchmark Price Index) and is still 1.75 times below its maximum value which reached year 2006;


  • Dividends can significantly add to the performance even in a relatively short time period – development of OMX Baltic Benchmark Gross index from 2009 to 2018 is a very good proof of that. The difference at the end of 2018 between Price index and index in which dividends are reinvested is 453%, which would be a theoretical figure as in real life investor would also need to pay dividend tax (exception is for Estonian investors thanks to the Investment Account regime. In Latvia this regime is available since 2018). But still we can see that Baltic companies made some fat dividend payments to investors, thus helping Gross index surpass its previous peak in 2007. Dividend yield for Baltic Stock market at the end of 2018 was 3.5%, which is pretty high level. Although the market is small in terms of the investment options, almost all companies on the Baltic Main market are dividend payers (30 companies from 33). Therefore, Baltic market can be attractive place for the dividend investor;


  • The stock market performance (2010-2018) was made on low number of trades. Therefore, although the stock market was doubling its value, we cannot see the same growth in the trading activity. This makes us accept an assumption that many new investors with money are sitting on the sidelines or they have turned into long term investors holding to their stocks. This was not the case in the beginning of 2000 when stocks were flipped over regularly. Also, back then, the amount of investment alternatives for small/medium investors were quite limited to what they are now: P2P loans, foreign equities for very low commission, ETFs, cryptocurrencies, ICO etc. Whatever you as an investor could wish for.

In conclusion, we must say we are surprised by the state of the Baltic stock market in the beginning of the millennium. It shows that Baltic stock market had not always been that boring (for short-term investors) and even can be fruitful for long term investors that continue to reinvest their dividends.

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