Iraq war fails to derail improving performance on leading global new markets but over half fail to deliver

24 May 2004. During 2003, global new markets have enjoyed a protracted and steady recovery which has seen market liquidity improve and volatility drop substantially. The improvements come despite the war in Iraq, which has failed to knock the recovery of new markets off course.

However, despite a number of new markets becoming more credible by gradually improving performance and attracting quality companies, Grant Thornton's Global New Markets Guide 2004 demonstrates how more than half of all global new markets are merely existing without much of a purpose, some failing to attract companies and funds altogether. The Guide is officially launched today around the world.

The world's new markets, broadly defined as those appealing to younger, high growth companies, once the toast of the investment community, have suffered badly since the peak of the global economy in March/April 2000. A two-year downward trend only began to regain lost ground towards the end of the first quarter of 2003, and has since kept edging forwards in a steady but protracted way.

Dato' N K Jasani, Managing Partner of Shamsir Jasani Grant Thornton said, "The war in Iraq appears to have had little impact on the performance of the new markets. Much more damaging was the period of uncertainty leading up to the war which coincided with the bottoming out of the downturn and undoubtedly contributed to shaking investor confidence."

He added that since the war, 2003 has seen several new markets impress the investment community by attracting new companies and delivering solid performances. Other markets have been a complete disaster; by the end of the year a total of four closed their doors whilst over half of them remain in a chronic vegetative state.

The Global New Markets Guide 2004 evaluates global new markets based on a generous 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 US$2 billion market capitalisation. Just 10 out of the 38 new markets pass the test.

Even amongst these, only NASDAQ, AIM, KOSDAQ, TSX-V, and only as of last year, OFEX, can be said to have added any real value to investors during 2003. OFEX, the newcomer to this group, between 2002 and 2003, increased its average market cap per company by 233%, from $12m to $40m. Markets such as GEM, the Mothers Market and SESDAQ have continued to produce some encouraging results but still fall short of delivering substantial returns. Over the last twelve months, around 10% of the world's new markets have ceased to operate, making last year's Grant Thornton prediction of a quarter of new markets closing by 2005 a very likely scenario.

*No published index. All numbers have been rounded to nearest whole number.

“Overall, despite the proliferation of new markets around the world, companies looking to float have little choice but to turn to their domestic markets as it is still difficult to find brokers that will support foreign shares. The sheer complexity of admission rules on many exchanges also continues to put company directors off,” said Dato' Jasani.

However, things are getting better. Various exchanges such as UK 's AIM have introduced steps to make it easier for foreign companies to achieve dual listing which together with improving corporate governance standards is making brokers much more willing to back foreign companies. The next two years are likely to see a further shake out in the number of new markets with the best performing ones going from strength to strength.

Although not among the top 10 performing markets in the Guide, Malaysia ' MESDAQ had performed reasonably well over the past year. The number of companies listed has gone up from 32 as at 31 Dec 2003 to 40 companies currently, raking in a total cap of about US$1,175 million which is equivalent to an increase of about 15%.

On the overall basis, Bursa Malaysia should also see more activities arising from the Government's action to vitalise the operations of Khazanah Holdings and the measure of achievement of Government-linked companies under the new Key Performance Indicators (KPI). Dato' Jasani concluded that “we should see more exiting times for Bursa Malaysia once the present phase of global uncertainties is over and the investors realise the better values and earnings available on our Bursa Malaysia.”