Weighed down by inertia and lack of interest, the Slovenian stock market is in danger of complete oblivion unless the country manages to join the European Union, analysts say. Never mind that the former Yugoslav republic boasts a buoyant economy and per capita GDP twice as high as Hungary's - its stock market is going nowhere fast. The root of the problem, analysts say, is that too many relics from the old communist system are still cluttering up the economy while the tax system positively discourages equities investors. ´´The government still holds key positions in many large companies which is limiting investors' interest in those firms,'' said Damjan Virsek, economic commentator at Slovenia's largest newspaper Delo.
In the first five months of the year, volume on the main share market slumped to 35 billion tolars ($163 million) compared with 61 billion in the same period a year ago. The state is the majority owner of port operator Luka Koper while government-controlled investment funds own some 24 percent of the country's largest blue chips, pharmaceutical companies Krka and Lek. The government also fixes petrol prices, influencing the performance of petrol traders Petrol and Istrabenz, and holds 66.5 percent of the soon to be listed telecoms monopoly Telekom. ´´Because of their ownership, our companies are still fairly ineffective,'' said Drasko Veselinovic, Ljubljana bourse chief executive ´´The capital market is a mirror of the economy.'' The bourse plans to merge with a large European bourse, but only once the country has fully liberalised its capital markets. This should be by the end of 2002 when it hopes to be ready to join the EU.
´´Membership of the EU is crucial because it will force Slovenia to scrap various limitations foreign investors face at present,'' said Joze Colaric, deputy director of the country's largest blue chip, drug maker Krka. A foreign investor cannot own more than 25 percent of large Slovenian shareholding companies that were privatised over the past five years without special permission from the government. Foreign portfolio investors are also not allowed to sell shares back to domestic investors for one year unless they pay a quarterly fee of 0.5 percent of the asset value.
´´Any restrictions are a disadvantage especially when it is a small economy,'' said Tim Ash, economist for central and eastern Europe: ´´When you have problems of capitalisation you never really want to impose restrictions.'' Slovenians are generally averse to dabbling in shares, put off by the element of risk and high taxes. So the future of the bourse lies in foreign hands. ´´Domestic investors prefer placing money in bonds which have favourable interest rates, represent a secure investment while at the same time there is no tax on interest rates,'' said Delo's Virsek.
Slovenia slaps a 17 to 50 percent tax on the capital gains of private investors except when they own a stock for a minimum three years, while interest from bank deposits is not taxed. Corporates pay 25 percent tax on year-end profits even if gains from securities have been included. A hoped-for shot of liquidity from increasing the number of market players looks set to misfire. Later this year private pension funds will be established, but they will be held back from investing too much in equities. ´´Pension funds will be limited by law on how much of their assets they can place in shares,'' said Peter Krassnig, head of portfolio management at Nova Ljubljanska Banka: ´´They are therefore likely to place more money into bonds.''