Stock Exchange Analysis - Example

Stock Exchange is a market where people trade in securities, options, futures of different companies based on the future predictions and strategies adopted by the company. Budapest Stock Exchange is the stock exchange for Hungary and has its headquarters as Budapest. It is also known as BSE. Vienna Stock Exchange on the other hand is located in Vienna and is called as Wiener Borse AG. Budapest Stock Exchange started “in 1964 as Hungarian Stock Exchange and within four years it transformed itself into the Budapest Stock Exchange”. (Budapest Stock Exchange, 2010) This stock exchange slowly found companies trading in their stock exchange also trading in exchanges like London, Paris, Amsterdam and Berlin. The working got affected during the world war. The result was that “assets became state property and trading ceased but it reopened in 1990 and slowly is getting back the status it had”. (Breeden, 2008) The exchange deals in all type of securities and is growing and has “40 domestic and international companies trading in the exchange”. (Breeden, 2008) The trading has changed itself from outcry where people used to shout on the floor to an electronic one. With the exchange have a strong policy the exchange is bound to grow in coming times. Vienna Stock Exchange on the other hand is one of the oldest exchanges. “It started in the year 1771 and trading was done on the floor where people had to shout”. (Vienna Stock Exchange, 2010) Slowly the trading got converted over the counter and electronic trading started to take place. The trading consist of “60% of Australian stocks and has both domestic and international companies trading their share”. (Vienna Stock Exchange, 2010) The exchange provides trading electronically and deals in “equities, government bonds to name a few”. (Vienna Stock Exchange, 2010) Vienna Stock Exchange has a sound financial structure. It is evident from “the market capitalization of Euro which stands at 52 billion”. (Bulmer, 2010) Their capital structure is dominated by mostly domestic equity. The turnover for Vienna Stock Exchange is “140.7 billion Euros for domestic equity and 2.2 billion Euros for international equity”. (Bulmer, 2010) The exchange has also maintained transparency. The trading goes in line with the growth the economy has witnessed. This exchange has such a sound financial structure because of the disclosure policy which is sound. The transparency and the strong infrastructure have helped Vienna Stock Exchange gain many investors. The financial nature is also seen by the fact that “264 companies are listed having both domestic & international companies which has also witnessed a growth by 37.8%”. (Bulmer, 2010) This trend also shows the soundness the financial market has. Budapest Stock Exchange on the other hand is a relatively new one. The stock exchange has a sound transparency policy and has “companies which are both domestic and international”. (Breeden, 2008) The exchange has “ownership which is highly concentrated thereby affecting the growth”. (Earle, Kuesara & Telegdy, 2004) This is resulting in cost outweighing the benefits. The exchange deals in eight currencies. The stock exchange has also a good mix of different type of securities which has helped in its growth trajectory. The exchange has a market capitalization of 21 billion and with times to come it is bound to grow. With companies listed on many exchanges like London, Paris and others along with Budapest Stock Exchange shows that the exchange is build on a strong financial foundation. Both this exchanges have many companies listed on their exchanges. Some of these companies are domestic and some international. In addition to this some of the companies are listed on multiple exchanges signifying the sound policies both this exchange has. Budapest Stock Exchange has around 41 companies listed on his bourse. Some of the prominent companies listed on the Budapest Stock Exchange are “Danubis Hotels Group, MKB Bank, MOL Group, OTP Bank to name a few”. (Budapest Stock Exchange, 2010) The fact that such big companies are listed on the exchange shows the soundness of the policy. For example, “Danubis Hotels Group is the largest hotel chain in Hungary with 40 hotels, MKB Bank is the third largest in the country, and MOL Group is an integrated oil and gas company and OTP Bank the largest commercial bank in the country”. (Budapest Stock Exchange, 2010) This also signifies the strong capital structure the country and the exchange has. Vienna Stock Exchange on the other hand is an old exchange having “128 listed stocks, 3202 bonds and 1677 warrants”. (Vienna Stock Exchange, 2010) The exchange has grown leaps and bounds and has some of the most admired companies in its bourses. Some of the companies listed are “Voest Alpine AG, Mayr-Melnhof Karton AG, Verbundgesellscraft AG Kat, Flughafen Wien AG, Raiffiesen International Bank Holding Ag”. (Vienna Stock Exchange, 2010) The exchange has companies from all sectors like “machinery, cars and its parts, food, processed food, paper, construction, tourism to name a few”. (Vienna Stock Exchange, 2010) Some of these companies also have a presence in other exchanges. This has added as a boost and enabled the exchange to formulate strong policies and contribute towards the economy. The performance of the stock exchanges also reveals important information regarding the differences in the working due to economic scenario. It is seen that Budapest Stock Exchange had “sales of securities in the exchange for 3.03 billion but the revenue was less by 20% due to the financial crisis”. (BSE, 2008) The profits also dipped despite cost falling down. When we look at the index “it reached the lowest of 10,751 points which was not seen in the past few years”. (BSE, 2008) The cash market has also “witnessed a fall of 5% over the last few years”. (BSE, 2008) The following chart shows it The above chart also shows a dip in performance due to the crisis. This has made stock loose its value. It has also resulted in companies delaying their issues and with the economy reviving slowly this is bound to improve. The Vienna Stock Exchange was also affected by the crisis. “The index lost 31% of the highest achieved and reached the lowest of 1,750.83 points”. (Wiener Borse AG, 2008) This downward trend is due to US. The shares for “building materials have witnessed a huge dip and have gone to a historical low of Euro 6.45”. (Wiener Borse AG, 2008) The share market was on a high but after the crisis shares have plummeted. “The trading volume has also dipped by 16%”. (Wiener Borse AG, 2008) It was seen that shares “were traded for a volume of Euro 6280.8 million and the liquidity position has also been hampered”. (Wiener Borse AG, 2008) The following chart shows it The same picture is seen for Vienna Stock Exchange as well. The trading has dipped and has affected the share prices. The financial crisis has taken a toll and resulted in prices being wiper off. The past few years were good but since the financial crisis the market is moving down. This has affected liquidity and is delaying companies to have fresh issue in the market. The financial crisis has affected both the Budapest Stock Exchange and Vienna Stock Exchange. The crisis affected the Budapest stock exchange so heavily that “it lost 2.12 billion in pension funds”. (Insurance Profile, 2010) The loss for “total assets under management also stood at 14%”. (Insurance Profile, 2010) When we compare it to the Budapest Stock Exchange it is seen that “Budapest stock Exchange lost shares value of 38% as compared to Vienna Stock Exchange which lost 30%”. (Insurance Profile, 2010) The reason for such a difference was the exposure on shares both the exchange had. The financial crisis affected hit “the household sector drastically which resulted in prices of infrastructure shares, buildings and other loose value”. (Wien, 2010) The crisis also affected the exchange rates. Both the countries had to bear the brunt as “the value of the currency depreciated and this decreased consumption”. (Wien, 2010) The effect of the crisis was so strong that it made the growth rate dip. It resulted in people postponing their current expenditure. This resulted in companies to reduce investment. The result was foreign investment dipped in both this exchange. The value of the currency also got wiped off. Both the exchanges due to the crisis saw value of shares being wiper off. Companies as a result also postponed their issues. This also brought forward the weakness of both the exchanges and showed the vulnerability of the exchanges. When we look at the securities traded on both the exchanges it shows some difference. The Budapest Stock Exchange deals in different types of securities. The exchange deals in “equities, ETF’s, Mutual Funds, Corporate Bonds, Government Bonds and IPO”. (Budapest Stock Exchange, 2010) Among the above mentioned the maximum trading takes in equity. This is followed by government bonds. Other type of securities forms a smaller part of the total trade. The exchange also deals in treasury bills though it forms a small proportion of trade. Vienna Stock Exchange on the other hand is dominated by “cash equities, futures, options, bonds and structured products”. (Vienna Stock Exchange, 2010) Most transaction take place in equity and others also contribute towards the trade taking place. An important fact out there is that “60% of the equities traded are Australian stocks”. (Vienna Stock Exchange, 2010) The exchange deals in all type of “futures and options like Australian Government bond futures, American style stock option, and European style option”. (Vienna Stock Exchange, 2010) Thus, we see that both the exchanges have some difference in the offerings. This has also differentiated the risk carried by each. Still, on a larger perspective we see that both the exchanges are equity based and offering something in addition to it. Despite the differences seen between the two exchanges as regard to securities offered, trading taking place and stock listed there seems to be an economic integration between the two. It is seen that “Wiener Borse who operates Vienna Stock exchange has 50.4% stake in the Budapest Stock Exchange is working towards a common platform for transaction to take place”. (Buhl, 2009) This will make both the exchange integrate their functioning and will bring a strong platform to excel. Having an integration also ensures that “cost are cut down as license fee to be paid is less, staff required is less which helps to bring in the latest technology for better trading”. (Buhl, 2009) The integration is sound as “Budapest Stock exchange also has 12.5% stake in Vienna Stock exchange”. (Connor, 2008) The stock exchanges are integrated is also supported by “agglomeration theory and transaction cost economics”. (Connor, 2008) Still, despite this there seems to be a low level integration between the Budapest Stock Exchange and Vienna Stock Exchange. Thus, there seems to be some degree of integration but it is very little and needs to be improved. This will help the exchanges to perform better and also ensure that efficiency of working improves. When we compare the exchange to other exchanges it shows that Budapest Stock Exchange still lacks certain infrastructure required. It is seen that Budapest has an older building compared to Paris. When we compare both this exchange to Frankfurt Stock Exchange it is seen that “the trading indices in Frankfurt are more compared to both the exchange as it offers DAX, DAX Plus, CDAX, DivDAX to name a few”. (Frankfurt Stock Exchange, 2010) A comparison to the London Stock Exchange shows the advancement in technology and the different varieties of securities being offered. The other difference in the style of working and the volume of stock traded. There also exists a difference in the number of shares listed. Thus, we see that Budapest Stock Exchange and Vienna Stock Exchange have some differences in the way they operate. Both this exchanges reflect the growth potential of their respective countries and is an important medium to know the growth prospects. Both this stock exchange has shown a dip in performance due to crisis but with the globe reviving the trajectory for growth will take soon. These exchanges also show that despite working on similar business models there appears to be a difference between them. With integration increasing this will surely be removing and with the passage they will convert themselves to be among the best exchanges in the world. References Breeden B, “The reopening of Budapest Stock Exchange”, US Securities & Exchange Commission, 2008 Buhl, “Wiener Borse plans single trading platform”, MTI Eco News, Lexis Nexis 2009 Bulmer M, “Vienna Stock Exchange: Cash Market”, 2010, retrieved on March 30, 2010, from http://mondovisione.com/index.cfm?section=sample&action=detail&mode=show_all&id=3328&item_id Budapest Stock Exchange, “Stock Exchange”, 2010, retrieved on March 30, 2010, from www.bse.hu BSE, “Summary of performance of Budapest Stock Exchange”, Business Development and Communications Department, 2008 Connor K, “The Hungarian Capital Market”, legal media group.com, 2008 Earle J, Kuesara C & Telegdy A, “Ownership Concentration & Corporate Performance on the Budapest Stock Exchange”, Volume 13, Issue 2, Page 1-11, 2004 Frankfurt Stock Exchange, “Frankfurt Stock Exchange Website”, 2010 retrieved on March 30, 2010 from www.Frankfurt-Stock-Exchange.htm Vienna Stock Exchange, “Company Website”, 2010, retrieved on March 30, from http://en.wienerborse.at/ Wiener Borse AG, “Wienerberger Shares and Shareholders”, the year 2008 and outlook, 2008 Wien, “Eastern European markets promising despite crisis”, Compress Verlagsgesmbh & Co, 2010 Read More