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Bulls rule in Estonia stock market

TALLINN, Estonia — Distraught shareholders seeking comfort in the shared misery of falling stocks won't find empathy from investors on the Tallin Stock Exchange.

Since 2002, prices on Estonia's market have soared nearly 50 percent, outperforming most other European exchanges, so badly shaken by war worries and a global slowdown.

While bad news mounted for most countries in Europe, Estonia — which regained independence amid the 1991 Soviet collapse — was buoyed by invitations to join the European Union and NATO.

"NATO and EU invitations brought on a bout of optimism," Tallinn Stock Exchange head Gert Tiivas told The Associated Press.

Good news on the economic front helped, too.

Gross domestic product growth in this Western-oriented nation was up 5.5 percent in 2002, and the central bank forecast similar increases for 2003. Key companies reported record profits, and strong consumer demand more than compensated for a drop in exports.

"When you're here and see the economy boom, you don't buy talk we're going to nosedive," said Tiivas, explaining how he brushed off predictions last year that Estonian shares were bound to start tumbling.

Kristel Kivinurm, of Estonia's Trigon Capital, said Estonia's expected membership in the EU next year also encouraged foreign investors to snap up Estonian shares in hopes that they'll rise after the country of 1.4 million residents enters the powerful bloc.

The Tallinn's main index rose 47 percent last year, from 144 points to 212 points. Blue-chip Hansabank — a pan-Baltic bank based in Tallinn, Estonia's capital — led the way, rising some 55 percent in 2002. Estonian Telekom, the second most heavily traded issue, rose 35 percent.

New York's Dow Jones Industrials, by comparison, dropped 16.8 percent last year — its worst showing since 1977. London's FTSE-100 sank 24.5 percent in 2002, and the CAC 40 in Paris shed 34 percent. But their sizes dwarf the Tallin Exchange.

A mere 13 companies are listed on the exchange, with Hansabank accounting for 63 percent of all trades in 2002. Daily market turnovers average just $1 million.

Comparatively tiny turnovers and a thin selection of shares can also limit the exchange's growth.

"If you are a smaller investor, that kind of liquidity is fine," said Albin Rosengren, an analyst with Stockholm, Sweden-based East Capital. "But large funds couldn't get out of this market as quick as they'd want."

The market in neighboring Latvia, the Riga Stock Exchange, also fared reasonably well in 2002, with share prices rising 27 percent. The Lithuanian Stock Exchange fell 13 percent.

Admittedly, Tallinn's exchange is showing some signs of vulnerability.

"But even our relatively flat prices so far this year are good, I suppose, compared to the bloodletting in most share markets around the world," said Tiivas.

He said the crisis in Iraq was probably a factor.

"Today, people are saying in Estonia that, 'Let's wait and see what happens over the next few weeks,' " he said.

Rosengren remained bullish about the Tallinn exchange, calling its performance no fluke.

"We believe it still has a lot to give," he said. "It's not a speculative thing. It's based purely from fundamentals, including Estonian companies with no debt, good cash flow and still low valuations."

Estonian's market also benefited by its sale two years ago to Finland's Helsinki Stock Exchange — where daily turnovers are over 500 times larger.

That merger, which included integrating Tallinn's trading system with Helsinki's, made it easier for foreign investors to buy Estonian stocks. Investors outside the county now own more than 80 percent of Estonian shares, according to the Tallinn Stock Exchange.

"I think the major reasons for our market's strong performance was macroeconomics," Tiivas said. "But the Helsinki link put in place the infrastructure to allow our market to perform more efficiently and to enable new players to come into our market."