Macedonian SE 2007 Future Outlook

The year 2006, when MSE was celebrating the 10^th anniversary of the commencement of trading, was the most successful year in the history of the Macedonian Stock Exchange, by all parameters. The reasons may be find in several facts: improved disclosure of the listed companies, especially the financial reporting; the introducing of new internet based system for distribution of the information from the listed companies; higher presence of foreign portfolio investors, mainly from the region (30%-40% on the buying side, monthly average); higher participation of the domestic investors on the market (boosted by the foreign investors); investments of the two new private pension funds etc.

For the purpose of compliance with the new Securities Law and implementation of several important improvements, in the last quarter of 2006 the MSE Board of Directors has adopted new acts: Statute, Trading Rules, Listing Rules, Arbitration Rules, Membership Rules and Disciplinary Rules. These rules are subject of approval by the Securities and Exchange Commission and are expected to be effective from the beginning of 2007. With these rules MSE is making changes that should make the market more transparent, efficient and in tune with the latest Securities Law and current trends in the more developed markets.

The new Listing Rules introduce a new tier in the Official market, called Super Listing. This tier is designed for the top-listed companies and it is expected to improve the disclosure of these companies, especially because of the obligation for bilingual disclosure of all information (in Macedonian and in English) and the detailed disclosure of the decisions of the shareholders assembly. The expectations are that most of the listed companies will remain on the Official market and that the top companies will decide to be listed on the Super Listing sub-segment. The companies are aware of the increased image being a listed company and advantages that go with it, especially because of the higher turnover on the market and, thus, the higher image of the Macedonian Stock Exchange. The financial reporting from the listed companies in 2006 was satisfactory and with the new Listing Rules MSE will strengthen the non-financial disclosure obligations. The future prospects are that the securities that remained listed will be quite liquid and that the listed companies will continue to improve their disclosure practice, especially because of the continuance of the tax incentives for listed companies (15% lower profit tax for 2007).

Starting from 2007 the MSE Code of Corporate Governance will become effective, which means that in the beginning of 2008 the top listed companies will be encouraged to announce a notice for compliance with the MSE Corporate Governance Code. The notice for compliance will be obligatory for the companies that will be on Super Listing. The overall ambience in terms of disclosure is expected to continue to improve in 2007 because of the new Securities Law (defining special category of reporting companies and giving the legal backing of the contractual listing relations between the MSE and listed companies).

In 2007 MSE expects the government to make another public auction for the sale of the state shares in the Macedonian Telecom through the stock exchange and possible subsequent listing of these shares. The government has decided to give away 2% of the shares to the employees which will affect the trading potential of the Telecom shares and potentially result in higher free-float. There are also expectations for privatization of the energy sector and infrastructure.

Some limited liability companies with dominant owners have expressed their interest for an exit strategy by using IPOs or some of the possibilities for sale of big portions of shares from the Trading Rules. Also, there are expectations for issuing of corporate bonds.

The participation of the foreign portfolio investors on the Macedonian securities market should further increase due to the better transparency of the companies. The expectations are that more foreign investors will enter the Macedonian securities market in 2007. In the previous years the foreign investors were mainly from the region of Former Yugoslavia, which makes potential for entrance of investors from other European countries due to the granted EU candidate status for the Republic of Macedonia. Also, we expect the presence of foreign investment funds, as well as foundation of Macedonian investment funds, taking into consideration that, until now, there is no investment fund registered in the Republic of Macedonia, besides the fact that there is legislation that covers this area. There are several non-formal expressions of interests for foundation of investment funds, as well as for new members of MSE.

The Macedonian government plans to continue the issuance of bonds in 2007 and to increase the number and amount of the new issues which should contribute to a further increase in the trading activity in debt instruments at MSE.

Two newly founded private pension funds within the mandatory second pillar of the reformed pension system in the Republic of Macedonia started their operations in the beginning of 2006, creating the first institutional investors on the market. The pension funds were active players on the securities market in 2006, especially in debt instrument traded at the MSE and the expectations are that they will continue their presence on the market.

MSE will actively follow all events in the region regarding the regional co operations between stock exchanges.