Europe’s New Markets Flourish Despite Turbulence: And Euro.NM Initiative Presages Further Wave of Entrants

The economic turmoil around the world during the second half of 1998 presented Europe’s new stock markets – EASDAQ, AIM and the four member markets of EURO.NM – with their first serious challenge. Overall, the young bourses weathered the storm better than their main market counterparts, according to European New Issues Markets – A Preliminary Review, a recent report published by the 3i Venturelab and INSEAD.

Although initial public offering (IPO) activity on most of Europe’s main markets was sluggish during 1998, particularly for small-cap companies, the new issues markets have experienced buoyant demand: AIM saw 40 listings between July and mid-December, EASDAQ launched ten IPOs during the same period, and a total of 64 companies joined the constituent markets of EURO.NM during the second half of the year.

EURO.NM looks set for further dramatic expansion during 1999. The exchange in mid-December announced that four new members plan to join the international network of growth stock markets during the first half of the year. The four existing member markets NMAX in Amsterdam, Euro.NM Belgium, the Frankfurt Neuer Markt in Germany and France’s Nouveau Marche – will be joined by the exchanges in Stockholm, Copenhagen and Zurich, which have already launched or are poised to launch new markets, and by Borsa Italiana, which is in the process of evolving plans for a growth companies market. Representatives of the London stock exchange are continuing to evaluate whether some form of participation in EURO.NM would benefit smaller growth stocks in the UK.

The development of Europe’s new issues markets has been rapid: AIM was launched in June 1995 and the Nouveau Marche in February 1996. In October of the same year, thanks in a large measure to the support of Europe’s venture capital community, the first pan-European stock market, Brussels-based EASDAQ opened for business.

By contrast with EASDAQ, EURO.NM is a pan-European network of individual exchanges rather than a single market, depending on marketing cooperation, regulatory harmonisation and technical cooperation between its member markets.

EURO.NM was established in principle in March 1996, but remained a notional “network” with just one member, the Nouveau Marche, until February the following year, when NMAX opened for business. The Neuer Markt and Euro.NM Belgium swiftly followed suit in March and April 1997. By September 1998, Europe’s new exchanges had achieved a combined market capitalisation of around ecu 40 billion (Table 1).

Neuer Markt Dwarfs Companions

Although AIM, the first of the new markets, also developed more rapidly than EASDAQ and the EURO.NM during its early stages, attracting more than 150 companies during its first year of operation, its market capitalisation lags that of its internationally-focused counterparts.

Within EURO.NM, whose market capitalisation has expanded dramatically during 1998 as a reflection of the volume of new listings, the Neuer Markt accounts for a colossal 81% of total market value, dwarfing the Nouveau Marche, which is the next largest contributor, with 13% of the total valuation, and NMAX and Euro.NM Belgium, which register, respectively, just 5% and 1% (Table 2).

EASDAQ, the market with the smallest population, has a higher average market capitalisation per company than either AIM or EURO.NM; in mid-December 1998, EASDAQ-listed companies’ average market capitalisation stood at ecu 327 million.

Considered in isolation, however, the Neuer Markt outstrips EASDAQ, with an average market capitalisation per company of more than ecu 350 million. AIM, whose stocks has an average capitalisation of less than ecu 50 million in September 1998, languishes at the bottom of the league.

Markets’ Profiles Vary

The great disparity in average market capitalisations underlines the clear variations in character that are emerging among Europe’s new markets, each of which is attracting a differing constituency of IPO candidates (Table 3).

The 3i Venturelab/INSEAD report found that, in line with its raison d’tre, EASDAQ has a strong technology focus, with computer-related, telecommunications and biotechnology companies together representing 41% of its listed population.

EASDAQ was modelled to an extent on the US’s highly successful Nasdaq, and is clearly providing a viable alternative home for European high-tech companies that might previously have chosen to cross the Atlantic for their IPOs. The similarity between the two market’s constituencies is underlined by the fact that more than 30% of EASDAQ-listed stocks also trade on Nasdaq.

Interestingly, according to the INSEAD/3i review, the decision to opt for a Nasdaq listing has backfired for some European companies, particularly biotechnology firms, whose valuations have suffered in the longer term. When US public markets devalue, non-US stocks, particularly those that investors perceive to be “exotic”, are particularly vulnerable to “bearish” attitudes.

This is compounded by the fact that analysts’ habit of projecting annual results from quarterly data sometimes results in over-adjustment of European stocks’ trading positions. The reviews’ authors suggest that this combination of factors mean that European markets may prove to be a better bet for some European high-technology companies.

The low average market capitalisation of AIM companies, by contrast, is partly explained by the heavy concentration of service companies among its listings.

Computer-related businesses account for slightly more than one fifth of stocks quoted on EURO.NM, but the network as a whole is otherwise strongly diversified; among its constituent markets, the Nouveau Marche is the most diverse, and tends to attract smaller-cap companies.


Europe’s new markets have demonstrated considerable resilience during 1998 compared with main markets, as Table 4 indicates.

EURO.NM’s performance has continued to exceed expectations. The EURO.NM Index, the broadest index for European growth stocks, closed on 1,953.94 at the end of October, representing a 95.4% increase since the start of 1998 and 252% since the start of 1997. The impact of worldwide market corrections has been limited: in mid-November, the EURO.NM All-Share Index was only 16.4% below the all-time high achieved in July 1998.

EASDAQ too has demonstrated strong overall performance since inception, with the EASDAQ All-Share Index (EASI) reaching a peak of 1,121.17 in July 1998. Although the EASI fell back to 470.38 while world markets were at their most turbulent, it had recovered to within 30% of its peak level by early December.

AIM, which has struggled to increase its overall price index and has, almost without exception, underperfomed the FTSE 100 Index, is the exception. After peaking at more than 1100 in the summer of 1998, the AIM index fell back to below 800 and, by the end of September, was still below the level at which it started the year.

Young Exchanges Show Resilience

The European New Issues Markets review shows that in some cases the new markets have definitely outperformed the broader market indices, particularly in France and Germany. The report’s authors state that, while some of this outperformance may result from the value-creation potential of the growth-oriented firms in the markets, “it may also be the result of a somewhat less than rational exuberance or speculation based on a comparative lack of corporate information”.

Despite initial scepticism from some quarters, the European new markets have quickly established a firm following among institutional investors, although to ensure continuing liquidity and robustness it is crucial that they continue to widen their investor bases. The 3i Venturelab/INSEAD review’s findings suggest that the new issues markets “may even be a good choice for portfolio managers to counterbalance swings on other markets”.

Similarly, the young exchanges seem to be experiencing no shortage of IPO candidates, and the planned expansion of EURO.NM is likely to attract attention from a more diverse geographic spread of enterprises. EASDAQ, meanwhile, has opened three additional offices in Paris, Frankfurt and London, to improve its local contact and visibility.

The future population of potential flotation candidates should be considerably larger than it is today, thanks to increased levels of early-stage technology investment in Europe during the past couple of years; this phenomenon is a welcome virtuous circle, because the renaissance in venture investment has been spurred in part by the prospect of earlier liquidity offered by Europe’s new issues markets.

Sceptics Confounded

Many market observers initially believed that Europe could barely sustain one growth stocks market, let alone several. In fact, the competition between EASDAQ and the EURO.NM member markets for listings may have enabled each of them to develop better than they would have done if faced with clear fields. Each of the markets, however, has different strengths and weaknesses. Professor Daniel Muzyka of INSEAD, one of the authors of the European New Issues Markets review, commented “The specialisations already evident are likely to strengthen and companies choosing to list will need to take these characteristics into account to ensure they are understood by investors and receive the right degree of attention. In the light of this, it is encouraging to see that these new issues markets are establishing themselves as a legitimate choice for fund managers who wish to diversify their portfolios”.

Growth Markets are Here to Stay

As EURO.NM moves to harmonise its member markets further and present a networked platform for trading, competition between its members and EASDAQ may intensify.

It is still unclear whether this will ultimately result in a full-blown “Battle of the Bourses”. Observers’ opinions on this front are strongly divided, as summarised by one of the respondents quoted in European New Issues Markets, who observed that some parties involved predict the demise of one or other market, while others see no real problem.

Given the rate at which European’s new stock markets have developed in less than four years, the successful performance of many of their member companies, and the vigour the markets have demonstrated in the face of worldwide market turmoil, the smart money must surely be betting that they are here to stay. It is equally certain that their shape will change rapidly and dramatically as they evolve.

Table 4: Comparative Performance of World Indices in 1998

(as at 11 December 1998)

Closing Year to Date Year to Date Year to Date

Index 11 Dec.1998 Closing High Closing Low Return

EASI 759.44 1,121.17 470.38 63.73%

EURO.NM 2,164.89 2,435.63 972.31 116.49%

DJ Euro Stoxx 50 3,064.28 3,646.04 2,433.07 16.35%

Russell 2000 399.18 491.43 313.05 -7.24%

Dow Jones Indust.8,821.76 9,374.27 7,539.07 11.55%

Nasdaq Composite 2,029.31 2,050.42 1,491.12 29.23%

S&P 500 1,166.46 1,192.33 927.69 20.20%

FTSE 100 5,541.70 6,179.00 4,648.70 7.91%

DAX 4,536.20 6,171.43 3,896.08 6.74%

CAC-40 3,695.70 4,388.48 2,862.54 23.23%

Source: EASDAQ