Our Analytics 21 february — 12:23

Elman Rustamov should hurry up (Our comment)

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BY MAMMAD EFENDIYEV, ECONOMY SECTION

Azeri Daily has already reported on the low level of the securities market in Azerbaijan. Suffice it to note that last year, transactions in the amount of 14,129.5 million manats were carried out in the country's securities market, which is 13.7% less than in 2019. True, the impact of such a recession on the country's financial market as a whole was not very noticeable. And there is only one reason for that: a meagre share of securities on the market. The capitalisation of banks and companies, previously actively initiated by the government, was practically not implemented last year.

At the end of last month, the country's chief banker Elman Rustamov also dwelled on this topic. And he announced the plans of the Central Bank, which has become a financial market regulator since the beginning of last year to improve legislation in the field of capital markets. Legislation in this area requires significant development. For example, today the banking sector can only participate in the capital market through the creation of investment companies, which creates bureaucracy and increases their costs. Therefore, it is necessary to allow banks to become players in the capital market directly, as banks are very active participants.

Rustamov spoke about the need to ensure full transparency of listed companies and their audit

According to the chief banker, the development of the capital market, especially the corporate securities market, is very important for the Central Bank. Although this is important not only for individual structures, but for the entire country. In many countries, banks, companies, and ordinary citizens are actively buying and selling bonds, stocks and other securities. Few of us dream about it. And even those few shareholders of small companies experience great difficulties in participating in the life of joint-stock companies and receiving dividends. Their only goal is to successfully sell their shares to the true owners of these enterprises.

But this is not always possible. We wrote a lot about such shortcomings, but, apparently, there are a lot of them today. Otherwise, Rustamov would have spoken about the need to ensure full transparency of listed companies and their audit. Today there are a lot of 'empty' enterprises and companies on the listing. They have no assets and turnovers, and the Central Bank is cleaning them up.

In general, the project for the development of capital markets, as noted by the general director of the Central Bank, Ali Ahmadov, is aimed at achieving four main strategic goals - creating an innovative legal framework, creating a modern market infrastructure, supporting the market and improving the regulatory framework. And for each strategic goal, tasks have been identified, for example, improving legislation on the securities market, repo and derivatives market and bringing it in line with international standards, creating links with foreign depositories, creating a modern operating system, and so on. Work has already been done in a number of areas, work is ongoing in the rest. In a word, the 21st century is already here, and we are still far from an effective market.

Azerbaijan has not answered the main question - does the country need a securities market or not? And why is it still not here?!

At the same time, it was the weak securities market that helped the country avoid large losses during the global financial and economic crisis in 2008. Then the crisis caused the bursting of the mortgage bubble in the United States. But even today, American millionaire investors predict overheating in the stock market, assets are growing in value for no reason. In simple terms, it turns out that most companies are only partially provided with goods. The rest of their value is money of investors, that is, shareholders. The real economy in the world is shrinking, which became especially evident during the pandemic. And the stock market, on the contrary, is growing: solely with hopes for a quick recovery. This optimism is influenced by the start of a large-scale vaccination against coronavirus and a new economic aid package from US President Joe Biden. Although many experts say that Wall Street is now in the same state as it was before the Great Depression.

We have repeatedly written about the growing bubble in the US stock market, which predicts a great danger to the whole world. But the bubble keeps growing. In contrast to Azerbaijan, the interest in it is very high in the United States, big business is being done here without goods: they play only on securities, which are often not backed by anything. Before our eyes, some companies bloat and others go bankrupt. And here the product itself is not so important as a well-placed PR or the random word of some celebrity.

Suffice it to recall how the rates of Bitcoin and Dogecoin soared after the statements about them by the founder and head of Tesla Inc. Elon Musk. In fact, how can any company, including Tesla itself, get rich within a day, or even several hours, worth billions of dollars. Any entrepreneur knows that the usual production cannot provide such a leap - this requires years of persistent and effective work. At the same time, even a small player on a large stock exchange will say the opposite - everything is possible on the stock market.

So the thought comes to mind: maybe we don't need such a developed securities market. In a country where money is kept in pockets the old fashioned way, and is paid almost exclusively in cash, one should not expect high interest in virtual money. But it is securities that contribute to the inflow of large investments (albeit virtual ones) into production. And the entrepreneur thinks not only about budget receipts or loans for the development of his production, but does everything to attract these investments in the required volume. You just need to skilfully build this market at all levels - both on stock exchanges and in small enterprises and large companies. At the same time, the volume of securities should not exceed many times the assets of the company, and each security should bring dividends to its owner. Otherwise, everything that is done is worthless. And the Central Bank needs to hurry up to put things in order in this important market.

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