As Novac/Viktor Vresnik writes on the 15th of July, 2019, Axel Kalinowski, director of the London Stock Exchange for Central and Southern Europe, has been working hard for years with representatives of Croatia’s market as part of his task of building a bridge between the new Europe and London as the centre of global financial and capital flow.
Novac and Kalinowski talked at the Esplanade Hotel in Zagreb, where he was Deloitte’s main guest at a capital market conference.
The Croatian market is very small, even if we look at it together with the Slovenian market. Does it make sense to have a local stock market in such a market?
”This is a question that is constantly being repeated, and can be put everywhere in Europe. Every European country today has its own stock market. Some have more of them, such as Germany, where there are seven, though, despite the size of the market, the capital market culture is in fact not significantly developed.
Our idea is to concentrate activity and regulation in one place. It’s a job I’ve been dealing with for a while. European and even Croatian companies don’t compete solely on local markets, they’re also struggling for their place on the regional and global markets.
The lack of strategic capability for access to funds on a large capital market can be considered a handicap compared to the companies whose access to that is secured, which are therefore far more liquid and ready for investment exploits. Europe must do everything in its power to make it easier for its companies to access money sources.
These aren’t just capital markets, there are also a variety of alternative funding methods that diversify the traditional ways of collecting money. Europe is too bank-oriented. Banks are, of course, important, but when they become the main source of capital, then that becomes dangerous.”
London is a huge market, one of the largest in the world, and the most important in Europe. Can it keep hold of that position after Brexit?
“It depends on what sort of Brexit we have in the end. Only then will we understand how close our relationship will be.
The London Stock Exchange has always been very closely connected with the continental part of Europe. We’re a very European organisation, we are the owners of the Italian Stock Exchange, parts of the French market… I think Brexit will ultimately not prove crucial to our business. The London Stock Exchange is over 200 years old, older than the very first idea of the European Union.
It has always been one of the world’s largest markets. If London loses out on the EU’s political map, it doesn’t mean that it will come out of the market. Europeans will then use the London Stock Exchange as one of the overseas markets on which their companies are listed. Such a separation is probably a mistake, but I don’t think that it will harm the position of London as a global capital and finance centre in the end.”
Could Brexit actually be good for London because it puts a strong market in the position of being on neutral ground?
“We already have the opportunity to see some companies which list their shares in London, even though they’re already on one of the world’s major stock exchanges. We mustn’t forget that today, money plays a big role on the market, money from the Middle East, from Asia… for them, London has always been a neutral point, unburdened by European political turmoil. In the long run, Brexit could really boost London towards the position of an actual global market. It’s difficult to foresee what the situation will be in the short term. Anything can happen in that respect.”
Does Trump’s chaotic US economic policy help you there?
”There’s no doubt that his sentences often have an impact on the US market, and everything that affects the US market then has a global impact. We’ve noticed that the interests of North American companies for the London Stock Exchange have become significantly higher over the last few years.
I don’t think that’s just because of politics, I think it’s more about structural issues. The London market is more neutral, internationalisation is more mature when talking about medium and small businesses. The American market is huge, but it’s oriented towards the largest corporations like Google, Facebook, Amazon… If you’re small, you can quickly get sucked up there. The London market is not marked by these megatranslations, but it has the most stable flow of money in both large and small companies. The ecosystem in London is far more sophisticated and more lively than that of New York. We offer a better environment for middle business, and they have recognised that fact.”
What exactly is your job as the head of the Eastern European Division of the LSE?
”Today, around 2,200 companies are listed on the London Stock Exchange and they come from 110 different countries.
We’re trying to strengthen our presence in areas where we don’t think we’ve fully exploited the potential and where there are opportunities for companies to better understand what the capital market is. We think that this part of the world, Middle, Eastern and Southern Europe, isn’t yet sufficiently serviced.
The market culture here lags behind other parts of Europe. We’re trying to build a bridge that will link local companies to global investors. That’s my role. To help companies understand the role, as well as the capability of capital markets, as well as numerous other, alternative business financing opportunities. Break the fear of ”big” London, which people who sit far from the centre sometimes make out is a big, weird, dangerous place, full of predatory banks and institutions.”
The London market has strict rules, many companies fail, nor do they want to play under those rules…
”Yes, the rules are firm and have been being applied like that for a long time now, but I think the fear of such an approach on the continent is exaggerated. London is, above all, a place of great networking and exchange of ideas. It’s a meeting point.”
Which markets have you recognised as the most developed in the part of Europe for which you’re in charge?
”It’s an exciting region, a region that, at growth rates, suggests a potential that is bigger than the one in old Europe, where the lowest growth rate is still considered good today.
That’s why new Europe is more interesting to investors than old Europe is I think the people from this region suffer from the prejudice that the global investor community is’t interested in it. That’s wrong.
That is wrong here in Croatia, too, where many aren’t interested in London investors as they’re based in Croatia. It’s true that companies in the vicinity of Croatia have recognised the opportunity use the London market very successfully. Romania has an excellent privatiaation program, and their privatisation agency is listed on the London Stock Exchange. There are a large number of large, formerly state-owned companies which are listed on the exchanges in Bucharest and in London. Slovenia has recently listed the new Ljubljana bank in London, which we consider to have been a success, as well as the selling off of Serbian bonds at historically low interest rates…”
Two large Croatian companies, Pliva and Zaba, left the London Stock Exchange because it did not pay for them to be there…
”This has happened a long time ago, today things are different, the stock market offers far more opportunities than it did before and we’re more open to different types of companies.
There are several different segments of the market with different standards. AIM, a market oriented towards small and medium-sized companies, has very simple standards today, all of which aare aligned with the needs of the investor.
There is no minimum threshold for listing, and given the fact that we’re talking about new companies here, we don’t investigate their financial history. Even on the regular market today, we have a split into two segments. The standard segment follows the rules of the EU, which apply to most European markets, and even in Croatia, only the premium segment applies the specific rules of the United Kingdom which, I would say, are at a more strict level than the continental ones are.
However, this regulation is based on good business practice, which is significantly different from that of the US, where strict rules must absolutely be followed. Our philosophy is different. If you don’t abide by any of the rules that have been set, you must be given the opportunity to explain why that is. If that’s acceptable to investors and regulators, then it can be adopted.”
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