FINANCE-ARGENTINA: Exchange Tries to Cash in on Internet Fever

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Apr 3 2000 (IPS) - The Argentine stock market, held in check for the last five years by the internationalisation of national companies, is loosening its regulations in order to attract trading of local Internet firms as it climbs aboard the “new economy” bandwagon.

The frenzy that traditionally characterises stock market traders has turned into confusion as they face the wave of bold young entrepreneurs whose only capital is their personal computer.

The new Internet business leaders have gone well beyond the traders’ proverbial ability to quickly adapt to change.

In the coming days, the ‘Bolsa de Comercio’ (Stock Exchange) of Buenes Aires will permit Internet firms to present a balance sheet for just one year – not the standard three – plus trimester reports. The companies are new and not yet profitable, but absorb millions in investments by those who are willing to bet on their future development.

With this strategy, this drooping stock market aspires to become part of the explosion led by some Argentine Internet sites – two are already trading on the New York Stock Exchange -, which began as student projects and a few years later began taking in million- dollar investments.

In Argentina, the numbers of computer owners and Internet users are proportionately less than in Brazil or Mexico, and rates of “virtual” business transactions are also low. However, the capacity of developing Internet portals that have been able to win the attention of international banking is notable.

But the Argentine stock market initiative seems to be lagging behind and appears more as a rescue operation by those who want to liberalise everything and anything, even the historic demands for trade, in order to bring liquidity to the market.

Its decision to create a panel of technology shares similar to New York’s Nasdaq index comes at a moment when Internet business shares in the United States have entered a phase of uncertainty that some attribute to excessive and unjustified growth.

The US investment bank Goldman Sachs announced in late March that it was cutting back its investments in technology firms.

Meanwhile, chairman of the US Federal Reserve, Alan Greenspan, warned against the apparent exuberance of these markets, saying they could turn out to be “financial bubbles.”

Luis Alvarez, secretary of the Buenos Aires Stock Exchange, told IPS that the new panel of technology shares targets e-trade, computers and Internet businesses, which have erupted “like mushrooms after the rain.”

Alvarez explained that there was an “exodus” of firms on the stock exchange over the last five years, cutting the total from 180 to 125. After they were sold to foreign firms, many local companies lost “the fundamental condition to invest in the Stock Exchange, which is to reside in this country,” he said.

Alvarez mentioned the case of YPF, the Argentine oil company acquired by Spain’s Repsol just over a year ago. Repsol offered the investors holding the company’s titles – many were YPF retirees – 30 percent more than the shares’ market value, and most agreed to sell.

Meanwhile, the United States has its certificates of deposit, a tool created so that foreign companies can trade there, another fact that hurts the range of products on the Buenos Aires Stock Exchange and empties its floors of traders.

Alvarez maintained that in recent years the Argentine middle class, which used to put part of its savings in the Exchange, is now concentrating more on survival, and the volume of cash available for buying and selling shares is much less than it was 10 years ago.

In this context, Internet companies have turned into a new “Mecca” for traders. Thousands of young Argentines, many of them still students, found the chance to develop themselves and obtain investments in virtual trade, becoming the envy of traditional or “real” companies.

One such case is Patagon.com, a financial assessment site launched by Argentine university students from a bedroom. Now located Miami, they obtained an investment of 529 million dollars from Spain’s Banco Santander Central Hispano.

The company’s founders, whose average age is 25, know that the injection of capital does not mean they are millionaires, because the firm has yet to see any profit. This knowledge is seconded by the owner of the US-based book-selling site, Amazon.com, now valued at 500 million dollars with yearly profits of 700,000 dollars.

“The characteristic trait of these companies is their enormous capacity to attract investment even if their balance sheets do not show profits. Their overhead is low, but they create expectations of future profits that are outrageous and often unjustified,” said Alvarez.

“Someone once said that it is as if it were a furor to buy land on the moon,” commented the stock exchange official. In the case of Internet companies, Alvarez said that when they go public they take on disproportionate value.

The Nasdaq, an index of some 5,000 companies of the “new economy,” includes at least two Argentine firms, while another dozen businesses also founded by intrepid young Argentines struggle to go public in order to attract investment that would allow them to continue developing.

The Argentine stock exchange secretary explained that the mathematical formulas that have been used to make investment projections based on holdings and profits of a traditional company, such as car manufacturers, do not apply for these investments.

Alvarez expressed his cautious optimism for the new Stock Exchange strategy to capture what are known as “dot-com” companies, but not without a certain amount of resignation.

“Today we are taking part in a revolution in which the investor, no matter how small, does not stop at company walls or the borders of countries to wager its capital,” he said.