VZCZCXYZ0021
RR RUEHWEB

DE RUEHTL #0163/01 0711528
ZNR UUUUU ZZH
R 121528Z MAR 07
FM AMEMBASSY TALLINN
TO RUEHC/SECSTATE WASHDC 9619
INFO RUEHHE/AMEMBASSY HELSINKI 5181
RUEHRA/AMEMBASSY RIGA 2863
RUEHVL/AMEMBASSY VILNIUS 6617
RUEHMO/AMEMBASSY MOSCOW 2478

UNCLAS TALLINN 000163 
 
SIPDIS 
 
DEPT FOR EEB/CBA AND EUR/NB 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EN
SUBJECT: ESTONIA'S STOCK MARKET CORRECTS; OUTLOOK STILL STRONG 
 
Ref: (A) TALLINN 92 (B) RIGA 166 
 
¶1.  (U) During the month of February, the Tallinn Stock market hit 
an all time 
peak and then fell just over 20%.  According to Embassy contacts and 
local 
analysts, the slide was driven by the profit-taking of local 
investors.  It is 
not a harbinger of underlying weakness in the local or regional 
economy, or a 
reaction to broader global market trends.  The economy is basically 
sound, (ref 
A) and the bulk of trading volume has been among individual 
investors rather 
than larger institutions, suggesting that this is not part of a 
larger flight of 
capital.  With February's declines, the OMXT has given up nearly 
half of the 
gains it made since October 2006, when it began a rise of just over 
fifty 
percent in four months.  Overall in 2006, the OMXT rose 48 percent, 
and it has 
averaged returns of 30 percent per year since it opened in 1996. 
Analysts 
expect that the Tallinn market may now fall all the way back to the 
October 2006 
level, but nevertheless do not see this as a "crash" so much as 
"letting air out 
of the tires". 
 
¶2.  (U) Opened in 1996, the Tallinn stock exchange is a fully 
electronic 
exchange, and one of eight stock exchanges within the OMX Group 
comprising the 
Nordic Exchange.  There are only fifteen (15) companies listed on 
the Tallinn 
exchange currently, and a relatively small percentage of the 
population is 
invested in the market.  Thus, movements in the OMXT do not have the 
same impact 
on the Estonian economy that say, a 20 percent drop in the Dow Jones 
average 
would have on the U.S. economy.  According to exchange officials, 
perhaps 
100,000 Estonians (or less than 10% of the population) have 
securities accounts 
dating back to the GOE's privatization spree of the mid-1990s, 
however, there 
are only about 10,000-20,000 "active traders" today.  The October 
2006 start of 
the market's current gains coincided with the Initial Public 
Offering (IPO) of 
the exchange's most recently listed company, Olympic Casinos.  This 
heavily 
promoted IPO coincided with a period of rising disposable income and 
living 
standards in Estonia.  The combined effect was to push the whole 
market up - a 
relatively easy task given the OMXT's small size and low liquidity. 
 
 
¶3.  (U) The Tallinn Stock Exchange seems curiously insulated from 
regional and 
global market movements - such as the trends from China affecting 
other markets 
in Europe and the U.S.  Exchange officials have pointed out that the 
OMXT is not 
particularly sensitive to interest rate changes by the European 
Central Bank in 
Frankfurt, because there are no banks or financial institutions 
listed on it. 
(Note: Tallinn Water, Olympic Casinos, retail & telecomm companies, 
and the 
Tallink ferry company are among the largest listed companies.  End 
Note.) 
During recent speculation about whether the Latvian currency, the 
Lat, would 
have to be devalued, (ref B) both the Riga and Tallinn markets 
registered 
virtually no reaction to the news.  This may be due in part to the 
fact that all 
trades are already cleared in Euros rather than local currency. 
 
¶4.  (U) The Tallinn exchange has plans for expansion later this 
year. 
Management Board Chairman Andrus Alber told us that by the end of 
the year he 
hopes to have an alternative market up and running, along the lines 
of the 
London-based Alternative Investments Market (AIM).  This would 
permit "more 
entry points into the market" and greater access to capital for 
small companies 
by creating a market with lower capitalization requirements, 
simplified rules 
for company prospectuses, and fewer restrictions on the number of 
issued shares. 
(as well as fewer protections and greater risk for investors). 
Alber expressed 
confidence that regardless of what coalition comes out of Estonia's 
recent 
parliamentary elections, the new government will eventually pass the 
legislation 
needed to establish this new exchange. 
 
GOLDSTEIN