Euronext Lisbon – riding the crest of a new wave of investors

The number of small investors dabbling in Lisbon’s stock market Euronext Lisbon has grown from 4% a few years ago to 15% today. Technology has played a part, but also the flow of new overseas relocators to Portugal. Essential talks to Euronext Lisbon CEO Isabel Ucha and discovers why.

Interview and photos: Chris Graeme

When I was growing up, few people in the general populace traded on the stock market and if they did, they went through a broker or solicitor. How has that changed?

It’s true in Europe, and more particularly in Portugal, that people have traditionally put their money in bank savings accounts which have low returns, so they don’t diversify their capital and take advantage of the potentially more lucrative returns from investing in companies, either by buying shares which carry a dividend and can gain in value, or bonds which are less risky and offer a maturity and interest rate that is higher than deposits.

What we have been seeing over the last two or three years, in particular since the pandemic, is many new small investors, particularly Millennials and Gen Z, coming to the market since they had time to think about their savings in lockdown and to research opportunities online such as shares and bonds. This segment represented around 4% of the market three or four years ago but has now jumped up to 15%, with a continuing upward trend.

These new generations are keen to select their own stocks through their smart phones, and because they are more literate financially and technologically savvy, this has resulted in more trading and brings more liquidity to the market.

How far has the recent influx of foreigners to Portugal in recent years influenced small trading on Euronext Lisboa?

The increase in relocators from overseas has definitely been positive for both Euronext Lisbon and the banks in terms of the volumes of stocks and bonds being traded; people who are investing in our capital markets through our banking system tend to be used to doing these kind of investments in the countries they came from.

I’d also like to add that banks are offering digital solutions which are more sophisticated than a few years ago. This is very important, since today people are used to using social media and bank digital applications, making investments much easier.

How far is technology changing the face of trading?

This is accelerating fast because now that we have Artificial Intelligence, this will enable platforms to provide a better understanding of the interests and needs of investors and offer them more tailored solutions and choice of funds for these investors. Some companies like Google Finance already offer such solutions, but it will soon become widespread with the advent of bots or GTP advisors that will give a clearer picture about which equities and bonds are suitable for you. This will be good for the investor, the companies in terms of liquidity, and the economy as a whole.

What Portuguese companies should investors look out for? We’ve noted that Greenvolt and Jerónimo Martins are performing strongly and Luz Saúde is planning an IPO shortly.

I can’t give advice about any of our listed or potentially listed companies, but I can say a few general things. We have benchmark companies on the Euronext PSI-20 index that have been growing, some of which have an international footprint and which pay dividends to bond and shareholders. Some of these businesses have macroeconomic growth trends benefiting from that which have generated good returns. Another important aspect is sustainability and ESG (Environmental, Social and Corporate Governance) with a number of companies that have been progressing well with good scores. Greenvolt (a renewables company in the centre of this transition) is a very good example of how a company is using the capital markets to finance their growth. Since they were listed two years ago, they have raised €250 million in equity and €250 million in bonds, and this money was used to invest in other companies in other geographies and internationalise.

We also have very good non-listed companies that could be very attractive for both Portuguese and overseas investors. We have noticed that every time we do an IPO, which means floating a company that has a solid business case, that is growing and has good opportunities for growth in the future, and has credible management, both local and international investors come and invest. There’s plenty of investors out there, but it’s a question of companies being willing, ready and needing the capital markets as part of their growth strategy.

How do you help companies that want to raise capital?

We are always here to help companies that want to get listed regarding the steps they have to take, navigating the regulations, meeting the requirements, as well as having dedicated IPO-ready programmes. Our comprehensive pre-IPO programme is designed specifically for businesses that are ready to take the next step towards going public. The six-month to one-year pre-IPO educational programme provides executives with the tools and insights they need to achieve their IPO successfully.

We also have a CRM-tool enhanced customer relation advisory service that helps companies to dialogue with investors and search for new investors from our vast database of investors, from where you can search by type of investors, sector and category. This database and the intel attached to it can help listed companies have a better investor base. If you have a larger and more diversified investor base, you will naturally attract more liquidity, have better stock, and at a better price.

Euronext Lisbon has outperformed the other stock markets within your group. How do you account for that?

There are two indicators in which Euronext Lisbon had performed better than its sister companies over the last two years: the PSI Index has performed better than the average index in the Euronext markets, and the volumes traded have increased much more than the volumes traded in those markets.

The reason why volumes have increased in Portugal is the influx of international people and with it a new wave of retail investors. Portugal has a strong tradition of share and bond retail investors. Confidence was adversely affected by some market difficulties, such as the collapse of Banco Espírito Santo in 2014, which scared away local investors, but now small investors are returning.

How did the various crises that hit Portugal directly and indirectly from 2007 to 2014 affect Euronext Lisbon? Many companies left Euronext.

The historical trend of having fewer listed companies over the past 25 years is not confined to Portugal. We have seen this in the US, in Europe in general, and in the UK. This was for several reasons, the main being that there was a significant number of companies involved in mergers and acquisitions. This also happened in Portugal which took some companies out of the market, but we also unfortunately had a few companies that were large and visible that failed both because of the financial crisis in 2008 and for other Portugal-specific reasons.

Having said that, if you look at the market capitalisation of the current listed companies in terms of percentage of GDP, it is not very different from other European countries of the same size, and is quite significant at around 30%. It’s not ideal since in the US that ratio would be closer to 100%, so we have a lot of space to grow.

One of the reasons the percentage is lower than in the US is our pensions systems. The Netherlands and the UK are the two exception countries in Europe where people have to save for their own pensions in a hybrid private-public system. That creates a pool of savings which are invested in capital markets by the professional managers of these pension funds in order to keep the value of the pensions for the future, generate revenue, and so maximise the value of the pensions they will have to pay in the future.

In the other European countries, you receive as you pay, so taxes are financing the current pensions. My view is that there would be an enormous benefit in changing this system, not only because of the positive impact on the capital markets, companies and investment, but also because with a falling birth rate and higher proportion of elderly, there is no way of financing full pensions as we have today. Savings and investments are what makes a country grow; if you don’t have savings then you don’t have investment.

How difficult is it for a Portuguese company to access capital?

It’s not necessarily difficult for a Portuguese company to access capital, as Greenvolt found when it was able to raise both national and international capital because it was a good business with good prospects. It has also not been a limitation for many other Portuguese companies. There was some capital destruction in some periods of our recent history, but saying we don’t have access to capital is not really true.

First, we have a lot of savings that we can’t put to work in the capital markets, but when there are good companies and intermediaries like Euronext Lisbon to help market these companies with local investors, and because of the global characteristics of today’s capital markets, they can access capital. If you look at the capital shareholder base of other listed Portuguese companies, from EDP to Mota Engil, you will find a lot of international investors such as pension and investment funds, and others.

What you can see is that from the trading in Portuguese companies that goes through our platforms, 80% comes from international sources such as global banks, some of which don’t even have offices in Portugal. That means that the final investors who are investing in buying and selling the stocks are doing so on the international capital markets.

What nationalities are the main investors on Euronext Lisbon?

The feedback we’re getting from brokers is a significant number of US and Brazilian investors, but also French and Belgian; investors from countries that have very high tax rates because we have competitive rates for foreign investors through the NHR tax regime and Golden Visa. I think what is important for all these tax regimes is for governments to keep them consistent and stable over long periods. The problem here in Portugal is that we don’t have a consistent, stable tax system. One good thing about financial investment is that the international investors are not taxed in Portugal, only in their own jurisdictions.

What two important messages would you like to impart about the capital markets in Portugal?

One message for CEOs, entrepreneurs, companies and their managers is that if you look at the companies that have been growing the most and have been most successful in the 21st century, like Google and Amazon, they are all listed companies and have all financed their growth through capital market transactions and financing, either by issuing capital or bonds, or other types of instruments. We have examples in the US and Europe of companies that have grown thanks to the capital markets. If we want Portugal to grow more, we would benefit from having more companies using the capital markets to do so.

The other important message is for individual investors and citizens around the world who have savings; they should look better at how they invest their savings and understand that the only entities that generate value are companies. If they don’t invest their savings in companies, they will not optimise the returns that they can have in the medium to long terms.