Since the mid to late 1990s, when the majority of the world’s new markets (broadly defined as those appealing to younger, high growth companies) were created, competition has been rife to create healthy environments to nurture fledgling and high growth companies and to then expand these markets’ appeal to an international audience of companies.
”Globally, a mere handful of markets can be said to have truly succeeded in attracting new companies and in growing investor appeal beyond national borders”, said Philip Secrett, International Director, Capital Markets Grant Thornton UK LLP. “SESDAQ, TSX-V, NASDAQ and AIM have, albeit for very different reasons, undoubtedly delivered value for money. The likes of GEM and the Mothers Market have also had a certain degree of success, particularly in terms of achieving critical mass, but have been less impressive in terms of delivering investor returns. Beyond this leading pack, with the exception of what constitute short-lived success stories, the equities landscape has been barren, with many countries maintaining a new market more for cosmetic value than business sense”, he continued.
In order to evaluate global new markets in terms of their 2004 performance, a basic analytical criteria of looking at only those markets that have been in operation for more than three years, have at least 40 companies listed and a $3bn market cap would see just 10 markets* meet this criteria.
In terms of attracting new listings, during 2004 AIM was by far the best global performer with growth of 23% in the average number of listed companies to 875. It was followed by SESDAQ’s 16% growth and GEM’s 13%. Despite a drop of 14% in average number of listings, TSX-V regained much of its lost ground towards the end of the year. NASDAQ suffered a fall in listings but, given its size, remained relatively stable. By comparison, some other markets, such as Portugal’s Novo Mercado, in operation since 2000, have yet to attract any companies to listing.
During 2004 AIM more than doubled its average market capitalisation whilst NASDAQ’s grew by over a quarter. In the Asia-Pacific region SESDAQ grew by 34% with GEM also recording a moderate increase. KOSDAQ by comparison saw its average market cap drop by 15%. The halving of TSX-V’s market value is attributable to the de-listing of some state debt, which comprised 90% of the market by value back in 2002.
With the exceptions of AIM, the Mothers Market, Nuovo Mercato and the Nouveau Marché, most markets experienced a reduction in their liquidity during 2004. In terms of volatility, most global most new markets experienced a marked fall. During 2002 and 2003 most markets had volatility of between 1% and 9% but during 2004 the maximum volatility was 4% reflecting the gradual index appreciation during the year.
”Whilst there are 36 new markets worldwide, the vast majority offer little or no appeal to domestic businesses, let alone international investors. Most markets are unable to break beyond the small cluster of domestic companies they list with others falling by the wayside such as the Czech and Dutch new markets that have now closed their doors”, said Secrett.
Meanwhile, some of the world’s leading new markets are powering ahead. ”NASDAQ, which dwarfs all of the other new markets combined remains the benchmark for growth companies around the world, however, other markets such as AIM, TSX-V and SESDAQ are holding their own. On the back of some impressive domestic performances the world’s leading new markets are now pitching themselves at an international level in a bid to win the race to attract growing international companies with those from the growing Indian and Chinese economies often the most sought after”, he continued.
”Despite a shake out amongst global new markets more are being created. The recent launches of Euronext’s Alternext and Australian Pacific Exchange demonstrate a commitment to small-caps. Whilst their future viability remains to be proven, it is likely that any successful new market will have to tap into a particular niche as the global stage is increasingly polarising towards the most mature and successful markets”, he concluded.
