|
BUSINESSWEEK ONLINE: DAILY BRIEFING | |||||||||||
| |||||||||||
|
BW ONLINE DAILY BRIEFING |
 | |
 | |
 |
||||||
Germany's Neuer Markt May Be the Exchange to Beat in Europe The growth-company market is adding listings like crazy. It just might become "Europe's Nasdaq" Lately, all sorts of U.S. companies have been scrambling around Europe, laying plans to create a Pan-European stock market for hot growth. But the hottest market of all is right under their nose. Officials from New York's Nasdaq are holding talks with European banks and investment houses about starting up a "European Nasdaq," perhaps as early as 2001. At the same time, a flock of U.S. investors, including Morgan Stanley, Goldman Sachs, E*Trade Group, and Knight/Trimark Group, the main market maker on Nasdaq, are helping inject $23 million into Brussels' lagging, three-year-old Easdaq market. Easdaq hopes to gain clout, liquidity, and trading volume by giving European listings to such U.S. powerhouse companies as Microsoft and Cisco Systems. But many Germans are coming to a different conclusion. They think that the booming, Frankfurt-based Neuer Markt will become Europe's premier growth-company market -- even if it has to go it alone. A new report by Dusseldorf-based WestLB Panmure puts the chances of the Neuer Markt becoming "Europe's Nasdaq" at 60%. And two recent reports by Deutsche Bank researchers in Frankfurt come to a similar conclusion. "The other markets in Europe have little chance of being anything more than wallflowers," contends WestLB Panmure equity strategist Hendrik Garz. A SUCKING SOUND. The idea that the Neuer Markt will emerge dominant is a politically charged notion in Europe, where World War II-era resentment of Germany still runs deep. The new growth-company stock markets are crucial to fueling job-generating small companies on the Continent that can reduce painfully high unemployment rates. Centering the growth market in Frankfurt could suck research, venture capital, and other key activities out of other countries into Germany. And if the Neuer Markt becomes so big that companies from France, The Netherlands, Italy, and other nations gravitate to it, the national growth stock markets in other nations could lose steam. Nonetheless, a compelling case can be made for Neuer Markt's future dominance. Started from scratch in early 1997, the new stock market expects to see its listings soar to around 200 by yearend -- more than a tripling of listed companies this year alone. In a nation with little history of equity investing, the total market capitalization of its listed companies has leaped from zero to $56 billion as Germans have scrambled to cash in. An investment in the early weeks of Neuer Markt trading is now up 550%. And shares of EM.TV, the Munich media company that is the Neuer Markt's star, have zoomed an incredible 12,000% in two years -- making it one of the best investments of the modern era. The Neuer Markt now overshadows every other growth stock market in Europe. The older Easdaq has finally topped 50 listed companies. But its market cap is barely more than one-third that of the German market. London-based AIM has more than 300 listed companies -- but less than a fifth of the Neuer Markt's market cap. And Paris' Nouveau Marche has more than 100 listings, but is only one-tenth the Neuer Markt's size, measured by market cap. Other new Continental growth markets lag even further behind. Milan's only had one listing until recently. TERRITORIAL. The big question at this point: How far and fast can the Neuer Markt keep expanding on its own? It was long assumed that Deutsche Börse, the company that runs Germany's stock exchanges, would cut a deal to somehow merge all the Continent's growth markets together. The Neuer Markt, Nouveau Marche, and six other Continental exchanges already have formed a loose cooperative venture called EuroNM. It has created a top 50 index of the biggest companies on all the exchanges. But plans to merge the exchanges, by putting them on a common trading platform so they can pool their financial liquidity and lower trading costs, have never gone anywhere. Too many nations, including the Germans, want to protect the sovereignty to their bourses. "We consider EuroNM dead at this point," snipes Clive Pedder, Easdaq's executive vice-president for market development. If the new EuroNM fails, competition probably will decide the winner. And many analysts figure the Neuer Markt will be so far ahead by the time rival groups like Nasdaq and Easdaq get their acts together that it will be unbeatable. "The Americans have tried this before [creating a Pan European growth company market] with Easdaq, and it didn't work," says Christoph H. Benner, head of Deutsche Bank's Mid Cap stock group in Frankfurt. Handicappers in Germany figure the Neuer Markt will win out regardless. With the competition from Easdaq and others heating up, the European exchanges may finally be motivated to tighten their cooperation. "This association has to happen," says Florian Haffa, EM.TV's chief financial officer. And if it does, it's almost certain that the Neuer Markt will dominate it. The German exchange already accounts for 90% of the group's combined market cap and dominates the Top 50 company index. FRESH SUPPLY. The Neuer Markt's home-court advantage is that Germany is such a big part of the new 11-nation eurozone, accounting for about one-third of its GDP. Germany also has some 800,000 Mittelstand companies -- small, often family-owned outfits hungry for fresh capital. Benner believes there are enough high quality, fast-growth companies in the mix to easily feed a fresh supply of 100 or more new companies annually onto the Neuer Markt for years. Meanwhile, the German market is already drawing IPOs from countries from Israel to Austria. Fully 13% of listed companies were non-German at midyear, and Benner figures that will rise to 20% as the market expands. One reason is that the Neuer Markt is way out in front of rival European markets in generating liquidity. WestLB Panmure figures the average daily trading volume in the second quarter was 3.1 million shares, seven times more than on the Nouveau Marche, six times greater than Amsterdam's growth market, and five-and-a-half times greater than on Easdaq. Measured in hard cash, the German market is even further ahead: During the second quarter of this year, it averaged $164 million in trading per day, vs. $23 million per day for Easdaq, $12.1 million for the Nouveau Marche, and just $4.7 million for Amsterdam. To be sure, the Neuer Markt has a long way to go. It's tiny compared to Nasdaq. And there are signs in the weird gyrating prices of some shares that the German market is still trading mainly on momentum and rumor -- rather than pure fundamentals. "The extreme volatility has affected us," admits Peer Schatz, chief financial officer of biotech pioneer Qiagen, which is listed on both the Neuer Markt and Nasdaq. "The Neuer Markt went berserk in the first part of 1998. That created a bubble. Now the opposite has happened. It has tanked and valuations are low." TOO HOT? Indeed, the Neuer Markt got a good pin prick in September, when it fell by 15%. That brought Neuer Markt price-earnings ratios back in line with those of the bigger companies on Nasdaq. Based on estimated year 2,000 earnings, the average p-e on the German exchange dropped from a peak of 56 in early February to around 44 now. But there are clear signs that the Neuer Markt can't sustain the torrid, 20-IPOs-per-month pace of expansion it hit this June and July. With share prices slumping, at least nine companies had to postpone Neuer Markt IPOs in September because of weak demand. A big secondary offering by hot media company Kino Welt also was undersubscribed. Now, EM.TV is saturating German media outlets with ads to avoid the same fate befalling its own upcoming secondary offering of up to $1 billion. To back that up, the company is dispatching two teams of execs on road shows to the U.S in early November to pump up interest there. "If such a huge offering fails, it will be a big black eye for the Neuer Markt," worries one analyst. Most German analysts expect the Neuer Markt to start expanding again at a fairly rapid clip by early next year, once Y2K jitters are past. Small growth companies know they have to consider joining the new growth market or risk seeing their shares just languish. That's what happened to Hawesko Holding, a mail-order and retail wine merchant near Hamburg that decided to list last year on the main German stock exchange, rather than on the Neuer Markt. Hawesko's shares have gone nowhere. "Sometimes we wonder if it wouldn't have been better to become a Neuer Markt company," admits Thomas M. Hutchinson, Hawesko's head of investor relations. "But who ever would have predicted what was going to happen with the Neuer Markt?" Not many people did, as it turns out. But now that the Neuer Markt has come so far so fast, it may be the market to beat in Continental Europe. Peterson, former Frankfurt bureau chief for Business Week, still follows European markets closely for BW Online
EDITED BY DOUGLAS HARBRECHT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
| |
 | |
 Assistive Technology barker.online Byte of the Apple Eye on Japan Hers.online Inside Wall Street Not-So-Neutral Corner Online Asia Power Lunch Privacy Matters Sector Scope Sound Money Street Wise Washington Watch News Flash Archive | ||||||
