Brussels hit by liquidity squeeze
Like most exchanges Brussels’ has had a dreadful year. This is all the less excusable given that the BEL20 is light on TMT stocks. With the index opening at around 3,300 at the beginning of last year, it nose-dived and bottomed out at the middle of March last year at a shade over 2,500. At the latest count, the index had gained a little and was back to 2,749, some way off last year’s high of 3,311 recorded in January.
Using last month’s closing figures is perhaps a little unfair to the Belgian exchange because, as Vincent Van Dessel, executive director at Euronext Brussels says, referring with great understatement to March’s slump, “one week was quite bad”. To give a fuller picture, the index was trading at around 2,925 at the beginning of the second week of March but in five days of trading, in line with almost every other exchange worldwide, had given up around 200 points or 7%.
So, despite the index being down, its recent performance has been less volatile than many other European exchanges. At the heart of this is the construction of the BEL20 index – plenty of financials and very few TMT stocks. More specifically, there are four TMT companies in the BEL20 but these represent only around 5% of the index – hence the lack of correlation with the Nasdaq. While other exchanges were rocketing as investors scrambled for high-tech stocks, Belgium showed relative stability.
“We were generally spared the downturn since last year as technology stocks went down. The BEL20 went up a little. Now in recent weeks, financial stocks are down as well,” he says. Turnover has gradually decreased over the past two years. Peaking in 1998 it has since fallen about 5% a year and although apparently innocuous, this tailing off is indicative of the malaise at the exchange. Seven of the BEL20 companies were taken over by foreign companies in the two years to 1999 and many have subsequently listed elsewhere.
ING Group, for example, bought BBL. Petrofina was swallowed up by TotalFinaElf and is now listed in Paris, as is Tractebel, once a major stock on the Belgium exchange. “Stock after stock has left the market,” says Marc Moles le Bailly, head of asset management at Banque Nagelmackers. Such an exodus has affected liquidity, something not suffered by the Paris and Amsterdam exchanges, the two partners in the Euronext venture. “If you are a pension fund or an investor from outside the country and you look at the liquidity, there isn’t any anymore,” he says.
Even Van Dessel concedes that performance in the past three years has been pretty feeble. Just as an illustration- in 1998 the BEL 20 was one of the top performing indices in the world. In 1999 when TMT stocks took off, the BEL 20 was one of the worst performing three indices in the world. So it’s perhaps just as well that the exchange is part of Euronext, which looks pretty healthy.
According to pro forma figures for 2000, net profits rose 46% to E127m. Revenues were up 34% to E752m, with pre-tax earnings climbing 51% to E256m. Equity trades stood at 128 million for 2000, totalling E1.7bn, a rise of around 60% on 1999. One hundred and eight new companies were listed on Euronext, taking the total to 1,600, with a combined market cap of E2.4bn.
Euronext has in addition signed a memorandum of understanding with Amex, the American stock exchange, to cross list and trade European and other internationally sourced ETFs and in February Clearnet became the sole clearing house and central counterparty for markets operated by Euronext. Euronext, amongst the turmoil surrounding other exchanges is planning its IPO and in January announced that ABN Amro Rothschild and BNP Paribas will act as global co-ordinators for its IPO. According to Van Dessel, the IPO should be completed before the end of June, market conditions permitting. A more precise timescale should be laid out at the AGM later this month but the performance of the Deutsche Börse since its IPO is hardly encouraging.
A successful floatation for Euronext will do nothing but good for the Brussels exchange, something not lost on Moles le Bailly: “We need a big stock market in Europe and Euronext will be part of it. Otherwise we are just local markets with alliances with each other.”