Why Is The Macedonian Stock Exchange Unsuccessful?

The Macedonian Stock Exchange (MSE) is not operating successfully. True, some of the parametric quantities which we utilize to mensurate the success of a stock exchange have got lately improved in the MSE. For instance, the monthly money volume have increased together with the number of transactions. But this is a far shout from success.

Who is to blame? Are the current management of the MSE incompetent?

I make not believe so. Actually, I believe the MSE have an first-class management team, doing their best to incorporate new trading techniques and to listing new firms. The problems lie elsewhere.

A stock exchange is a very of import financial market. It is a highly efficient and seeable instrument of financing. In the West, it is used to finance most of the needs of corporations, manner above funding available from banks. Individuals and firms save some of their income and put it. The stock exchange is meeting evidence for rescuers wishing to put their nest egg - and firms looking for investments.

Another mathematical function of stock exchanges is to help authorities in funding their internal borrowing requirements. Governments sell duties (called bonds) to investors through the stock exchanges in their countries. A stock exchange is, therefore, an indispensable tool for re-financing national debt.

But a few statuses must predominate before a stock exchange mathematical functions properly.

The most of import status is the being of a healthy, growing economic system in the stock exchange's country. Investors flock to robust economic systems and diffident away from sickly ones.

On the human face of it, the Macedonian economic system belongs to the latter category. High unemployment, low savings, retarded growth, a agape trade and payments deficits. But this is an ocular illusion. The economic system is in much better statuses that most Macedonians would care to admit. The unemployment figs are skewed. They reflect attempts to hedge paying societal taxes - not existent unemployment. The economic system is growing, even by functionary estimates. The achromatic economic system is growing even faster. The shortages are covered by tremendous capital extracts from giver countries. Macedonia is receiving more than international credits per capita than Russia. It is always convenient to fault the deterioration economical clime - but the cold, aim figs make not bear this out.

When an economic system is growing - the net income of companies (including those listed in the MSE) will turn with it. This do the shares of these companies an interesting buy.

Since no 1 is buying - we must look for the problem elsewhere.

A booming stock exchange is linked to the being of the right micro and macro instruction economical management. Macedonia have more than than its share of problems in this respect.

The procedure of transformation of businesses with societal capital had four basic flaws:

first, it introduced no new management, ideas or capital to the beleaguered firms which were "transformed". The market simply makes not believe that they were transformed. The same people run the same shows under a different hat.

Second, such as transformation go againsts the conception of Hierarchy, a concatenation of command.

It fuzzes the differentiation between labor (workers) and capital (owners). What is incorrect with that is that a ship must have got a captain - and only one. Person must have got the authorization and the responsibility. Corporate management is no management at all.

Moreover, invention change and revitalization are all prevented. What change could come up from the same set of worn out managers? How can thousands of proprietors make up one's mind to decline the statuses of the work force - if proprietors and laborers are one and the same? So, management is contaminated by irrelevant, non-economic considerations: powerfulness fights amongst groupings of workers, societal considerations and political ones.

We identified one villain. The other 1 is high (real) interest rates. When interest rates are high, three personal effects forestall the resuscitation of the stock exchange:

First, firms have got high funding disbursals (interest payments) - which reduces their profits. Second, it is not worthwhile to borrow money and to put in shares.

Third, it is more than alluring to put money in bank deposits, yielding high interest rates - than in shares. High interest rates are the poisonous substance of stock exchanges.

The same is true for low nest egg rates. If people and firms make not salvage - there is no capital available for investing in stocks.

This, exactly, is the current state of affairs in Macedonia : impossibly high interest rates coupled with exceedingly low savings. There is basic misgiving between clients and their banks. They prefer other ways of keeping their money.

But all the above is far from draining the listing of pre-conditions for the proper operation of a stock exchange.

Investors must have got timely, accurate and full information about the firms that they put in. This volition allow them to react in existent clip to developments in the company and to forestall losses. This volition also do it hard to beat them - which is were we come up to the inquiry of accounting standards. Only lately have got the accounting regulations in Macedonia been revised to conform to the Western systems of accounting. Even now, the similarity is very slight. Macedonian firms keep a dual accounting system. One set of books is tax-driven. It is intended to demo losings or net income at the caprice of the management. An elaborate strategy of concealed militia lies at the bosom of the typical financial statements of the Macedonian firm. Another set of books - if they are kept at all - reflects reality. This is an tremendous barrier to foreign investing - and foreign investors are the drive military unit in every modern stock exchange.

The trust of investors in the stock exchange is based on statute law to protect their property rights against the firm's management' against the government and against other investors who might wish to rig the market or pull strings the terms of stocks.

But statute law without an effectual judicial and law enforcement systems is like a stock exchange without money. To implement property rights in Macedonia takes ages and even then the result is not certain. Laws, ordinances are in their embryonal stage and some of them look to have got had an abortion: they were hastily and unwisely copied direct from legal codices of other states (Germany, Britain).

Last - but definitely not least - is the being of a fair, transparent and non-corrupt marketplace. The stock exchange, the banks, the regulating authorities, the police force and the tribunals have got to be above suspicion. For the market to be utterly efficient - it must be utterly free of any ulterior considerations and motives. Corruptness falsifies the market's allocative chemical mechanisms and powers. It is easily discernable in dealings in the stock exchange for all to see. A stock exchange is, after all, the show window of the local economy.

But there is a problem which towers above all other problems and it is almost endemic to Macedonia. It assists to explicate much of the quandary of the stock exchange in Skopje. It is the fact that the market is missing its most of import player: the Government.

Investors - both foreign and domestic - expression for the Government to be active in the local stock exchange. Governments throughout the human race usage their stock exchanges to sell shares of state-owned enterprises to their populace. The stock exchange goes a chemical mechanism for the statistical distribution of the national wealthiness - as embodied by the state owned endeavors - to all the citizens. As we said before, authorities also utilize the stock exchange to borrow money from their citizens.

The Government of Macedonia makes neither. It totally disregards the MSE. Not one company was privatized through the MSE. Not one Denar was borrowed from a Macedonian citizen through it. A government's activity in the stock exchange is cogent evidence that the authorities believes in it. Therefore, if it makes not operate in the stock exchange - it turns out that it makes not believe in it. If the authorities makes not believe in the stock exchange in its ain country - why should the investors believe in it?

There are a few further structural features which are considered to be the trademarks of a healthy stock exchange. But those are the by-products of all the above mentioned conditions.

A stock exchange must be liquid so that investors would be able to convert their shares into cash easily and expediently. It must include many investing options - professionally put, it must be diversified. This volition allow the investors to take from a assortment of investings and also to reduce their hazards by dividing their money among a few types of investments.

The management of the stock exchange can assist it by introducing efficient trading techniques, computerised trading and settlement systems and so on. The faster investors ran into their money when they sell their shares - the more than they will be inclined to operate in the stock exchange that allows them that. The easier it is for them to waste their assets by meeting buyers - the more than they will prefer to work in that stock exchange.

Investing in the stock exchanges in the markets of the emerging economic systems have been an unfortunate determination in the last three years. Stock exchanges from Soviet Union to Republic Of Hungary and from Republic Of Lithuania to Republic Of Poland have got jeered wildly since the end of 1993.

They resembled a roller coaster in their performance, going up and down by 10s of percents annually. There are exclusions to this rule. The Ljubljana Stock exchange, for instance. The trading volume there have gone up 10 modern modern times since December 1993 - and the market capitalization is up 30 times. But this is because of the public presentation of the general economic system in Slovenia. In Croatia, the authorities is privatizing its retentions in state owned companies by auctioning shares to the public through the Zagreb Stock Exchange. This have helped it a lot.

Newly-established banal exchanges are highly volatile and very dangerous. Volatility travels manus in manus with risk. They are long term investments. Since 1988, they outperformed the more than constituted stock exchanges in the world, like Wall Street.

But these stock exchanges are growing fast, they are cheap by any measurement and they are the best investing that a country can do in its ain future.