The Belgrade Stock Exchange (BELEX) serves as a mirror of Serbia’s economic health, echoing the state of its market and economy. Historically, the stock exchange played a crucial role during Serbia’s transition period nearly a quarter-century ago, proving its value as a fundamental component of a market-based economy. However, the current state of the exchange reveals significant stagnation compared to its past vibrancy.
A promising past
The Belgrade Stock Exchange once thrived during the privatization era, where mass distribution of shares and state bonds for the return of foreign currency savings highlighted its importance in Serbia’s economic model. During this golden age, the exchange experienced robust turnover and value. By the end of the 2000s, it was a well-integrated part of Serbia’s capital market infrastructure, fostering connections with Vienna and Athens stock exchanges. However, the global financial crisis and COVID-19 had a lasting impact, and despite modernization of the legal framework in line with EU regulations and IOSCO recommendations, the market has not fully recovered.
Constrained present
The stock exchange’s current challenges reflect broader economic issues. Stock exchanges are created from the needs of market participants and exist to serve them. The transition from a planned economy to a market economy led to the creation of stock exchanges by adapting legislation from developed markets. Yet, Serbia’s stock exchange has struggled with stagnation, demonstrating symptoms of a rent-seeking economic model rather than a profit-driven one. This model, characterized by bank-centricity and rent extraction, impedes the dynamic growth necessary for a thriving stock market.
Investment funds, although legally harmonized with EU regulations, have not achieved their potential due to a lack of diverse portfolios and limited investor engagement. The absence of initial public offerings (IPOs) and reliance on favorable bank loans further exemplify the inefficiencies within the current economic model.
A likely future
For the Belgrade Stock Exchange to revitalize and become a driving force for development, several changes are necessary. The introduction of a clearing house could reduce business risks and facilitate margin trading, particularly benefiting agricultural producers through futures contracts. Additionally, fostering financial literacy and a shift towards a profit-based economic model are crucial for market growth.
Listing large state-owned companies, such as Telekom or EPS, could provide the market depth needed to attract smaller firms and improve transparency. This move would not only enhance the stock exchange’s relevance but also signal a commitment to market economy principles and democratic values.
Ultimately, the revival of the Belgrade Stock Exchange depends on simultaneous development of both capital market infrastructure and entrepreneurial activity. Embracing these changes would support Serbia’s economic progress and the expansion of its middle class, essential for a thriving democracy and open society.
