In Lisbon the main exchange news of the year has involved domestic and international mergers. First the Lisbon stock exchange and the Oporto derivatives market linked up to form the Bolsa de Valores de Lisboa e Porto (BVLP). This led to a major step forward in the continuing saga of Euronext.
Around this time last year Lisbon spokesmen were expecting an agreement with the Paris-Brussels-Amsterdam axis by March. Negotiations took a little longer, but a memorandum of understanding was finally signed in June, outlining the plans for merger.
The merger transaction is subject to the satisfactory conclusion of further negotiations between BVLP and Euronext as well as regulatory and legal approvals. Ricardo Sousa, at Banco Santander in Lisbon, believes this may take longer than expected. “I think we will see a postponement until at least the end of the year, though no date has been set.”
BVLP has taken the first steps towards integration and has just finished a restructuring process both organisational and operational to better position itself in what it sees as the new European capital markets environment. Sousa thinks there are some cosmetic changes, but at lest one significant step. “The only operational change we are expecting, and probably not until the end of the year, is earlier opening. That is to say to bring ourselves in line with the rest of Europe, with pre-opening at 7:30am and opening at 8:00am. That is the only thing which has been done so far to get more in line with Euronext.”
There are, however, differing views on the efficacy of the move. The board of BVLP is naturally bullish. Sonya Montero at BVLP in Lisbon says: “We believe consolidation across Europe is inevitable, and also that Euronext offers the best model for the Portuguese exchange. The single trading platform should be a boon for our domestic companies, and investors will have access to a far greater range of products.”
Just as it is for any exchange contemplating a merger with Euronext, the question is where will the increased liquidity go, and who will really benefit. “For Lisbon, where liquidity is so low, the merger with Euronext can only be a very positive thing, and improve the health of a number of domestic companies,” says Polavieja. “The impact on Spain will, however, be neutral.”
Manuel Alves Monteiro, president and CEO of BVLP, unsurprisingly agrees. “Joining Euronext is the essential next step in our strategy to restructure and reposition BVLP in a global market. We believe Euronext offers quality of service, technology, efficiency and innovations across the full range of business lines. In addition, we expect the merger will provide our users with a deeper and more liquid market.”
It is perhaps the last part of the quote that gives the game away. Although investors will benefit, how will Portuguese companies fare? “This year has been characterised by low liquidity,” says Sousa. “There are two reasons for this; first of all, from May to September trading activity was very slack, although it is picking up a little now. The other thing is prices, which dropped dramatically from the high levels of last year, and so volumes are down.”
Typically the Lisbon exchange is dominated by a few small stocks, with PortugalTelecom boasting between 40–50% of trading volume, BCP around 10% and EDP around 7%. These three stocks could then on any day account for two thirds of the market. On a normal day one or two other stocks will show some activity, but the remainder will be fairly dormant. So what will the impact of the Euronext deal really be?
Sousa speaks for the sceptics. “The stocks which are already the most heavily traded will probably have greater liquidity. But even then they will be among larger European stocks and that could work against them, as in terms of Euronext they are mid-size stocks. As for the others, if you are index tracking and looking at the Euronext index, Portuguese stocks can expect less liquidity. If that happens do you introduce an auction market in place of the continuous market? Overall I am not certain the merger will have the effect that BVLP are hoping for.”
With the leading executives from the world’s stock exchanges meeting in Madrid last month, no doubt merger discussions were taking place in smoke-filled rooms, but Madrid continues to play its cards close to its chest. While its Iberian neighbour has bitten the bullet and signed the accord with Euronext, Madrid, a far greater prize, continues to have discussions with a number of potential partners.
Never slow to promote itself, the Latibex subsidiary, specialising in Latin American stocks, is also hosting a major conference this month, with over 30 CFOs from major South American companies meeting with fund managers from Europe.
The last set of available figures for the Bolsa, the three quarters up to the end of September, show a solid performance in what to date has been a very difficult year for the markets. Trading was down a little over 10% at Ptas43.87bn (e263m). Of that figure equity trading amounted to Ptas43.5bn, accounting for virtually all activity on the exchange.
In terms of growth it was only rights warrants and other securities which showed an upward turn These products generated Ptas316m worth of activity, up 194% on the same period last year.
In sector terms it has been a very uneven year. Of the 10 groups which make up the market half showed significant increases, with petrol and metal-mechanic leading the way with 12% jumps. The electrical sector also performed well, up 7.8%.
The loudest bearer of bad news was, inevitably, the technology sector. Here the market saw the lowest ever trading for these stocks, down 50% on last year at Ptas2.64bn.
What good news there was came from the fact that foreign investment held up compared with last year. It accounted for a fraction over 51% of the market activity, compared with 53% last year, with sells marginally outweighing purchases. Unsurpringly in the current climate IPOs, both public and private, have been thin on the ground, producing just a quarter of the activity of the same period last year. Latibex has also suffered a downturn in such activity, but there are number of companies in the pipeline, which are expected to come to the market in the first quarter of next year.
Ignacio Polavieja at Inverbolsa believes the political situation worldwide has sucked money out of the market. “It is true that prices are low, but our clients believe that the risk they have to accept at the present time is very high. Provided the war does not spread, I believe people will come back with increased confidence.”
He confirms that the five biggest stocks are currently trading at very low levels. “I believe money will come to Spain, given the performance over the past three years. There is a lot of money out of the market, and we believe that the next quarter will see a steady return.”
On investor confidence Polavieja says there is no discernible difference between overseas and domestic investors. “Our business is split evenly between the two groups and I see no distinct trends to indicate differences between the two groups.”
On the question of merger talks, he believes there will be no moves in the immediate future, but confirms the Bolsa members see it as inevitable.