Donna Block: Share World
Until very recently Greece was considered Europe’s basket case economy, with huge public debt, an antiquated labour market, an enormous bureaucracy and a state sector reminiscent of the old Soviet bloc in its inefficiency and corruption.
But signs are that the poorest country in the European Union is getting its act together. In early July, the Greek government pushed the drachma into the European Community’s exchange-rate mechanism.
The move sent the Athens stock market into a bullish frenzy as analysts saw it as a signal of the reform government’s intention to keep a firm hand on the struggling economy.
Greece has two stock exchanges, in Athens and in Thessalonika, with 240 and 40 listings respectively. The latter was set up in 1995 and is concentrating on developing an alternative market for small to medium-sized companies in Northern Greece and the Balkans.
Foreign investors can buy shares in any Greek company, re-registration of national status is required for a majority shareholding in a shipping company and foreign ownership is limited to 25% in media companies.
Although the labour reform and privatisation have been too slow for some market watchers, progress is being made and foreigners have taken an active interest.
Across the Balkan Sea is Turkey, traditionally on the crossroads between Europe and Asia and thus standing to benefit from the economic development in both. But, as one analyst says, the equity market is “not for the faint of heart”.
Market capitalisation on the Istanbul stock exchange has grown from less than $1- billion during 1986, its first year of operation, to $60-billion. But when it comes to volatility, the Istanbul market is in a class by itself.
In 1992 it was the worst performing emerging market, down almost 50%. In 1993 it gave new meaning to the word rebound as it bounced almost 208% and then plunged again by more than 52% in 1994.
This bumpy ride has caused those with a weak stomach to get off, but has also attracted the die-hard investor.
The close economic links between Russia and Turkey make it especially sensitive to Moscow’s economic emergency. Turkish firms scooped up 85% of the foreign construction business in the former Soviet Union.
With a steadiness and cultural rapport most Westerners do not possess, Turkish contractors have won business worth $14- billion in nine years. Now hundreds of Turkish companies will suffer tremendous economic loss if Russia fails to pay its bills.
Turkey’s efforts to attract foreign investment have been frustrated by the government’s slow-moving privatisation programme and its policy of retaining stakes in some enterprises.
These expose investors to the risk of being involved in schemes managed for political rather than economic ends. As one market watcher put it, foreign investors could be “taken for a ride with a driver who has been proven to be a drunk driver”.
Yet, there is a glimmer of light. Turkish Prime Minister Mesut Yilmaz last week put the finishing touches on a scheme to isolate Turkey from financial contagion.
Unlike his Malaysian counterpart, who instituted capital control, Yilmaz went for incentives.
He got rid of restrictions on banks’ forward operations, and abolished withholding tax on interbank transactions, government paper and the tax on interest on bank deposits.
These measures are unlikely to bring back the $4,5-billion that has fled the country in the past two months and overseas investors are still unlikely to rush back into the Istanbul stock exchange.
But by showing the investment world that he intends to lure instead of trap investment in his country, Yilmaz has at least managed to avoid the capital flight that has crippled other emerging economies.
This concludes the Smart Money tour of the world’s stock markets