Irish pack a punch greater than their weight on Nasdaq

In less than 30 years, the Nasdaq has come from nowhere to become the largest stock market in the world. Powered by a sophisticated computer system, more than 5,500 stocks are now listed on the exchange, generating an average trading volume of nearly $1 billion (€946,701 million) each day.

Only in terms of market capitalisation does the Nasdaq lag behind the famed New York Stock Exchange (NYSE). But joining pools of capital rather than grabbing all the trade or becoming the sole market is the aim of the Nasdaq, according to the head of Nasdaq International, Mr Charles Balfour. "We are trying to produce the most liquid and efficient markets," he says. "It's all about companies being able to access the cheapest possible capital."

Mr Balfour, who is responsible for looking after Nasdaq's interests outside the US, says there are 430 non-US companies listed on the exchange with European firms accounting for about one-third of these.

Among those, Ireland punches well above its weight with 11 Nasdaq-listed stocks including market heavy-weights like CRH and Waterford Wedgwood as well as the high-tech firms like CBT and Iona Technologies for which the exchange is renowned.

"Ireland is extremely important to us and will continue to be so," says Mr Balfour. He adds that Nasdaq is constantly in talks with Irish firms interested in taking a listing. Although there has been a slowdown of late in the number of Irish companies opting for a Nasdaq float, Mr Balfour attributes this to market conditions rather than recent concerns about volatility.

"Companies tend to put off their plans if their peer groups are in the doldrums," he says.

However, the drubbing taken by a number of Irish Nasdaq-listed stocks in recent weeks has prompted some to wonder if it is indeed the right choice for young high-tech companies looking to grow and whether they might not be better to opt for safer choices such as venture capital funds or trade sales.

But a Nasdaq listing remains an attractive option for such companies, Mr Balfour believes. "If Bill Gates had sold out to a trade buy, he wouldn't be where he is today," he says.

Mr Balfour also says that the volatility is partly a reflection of the depth of liquidity on the US capital markets.

But he believes it is also important to compare "apples with apples and pears with pears", pointing out that companies generally tend to perform in line with their sector while stocks of a similar size generally tend to have much the same trading pattern across markets.

"We have no influence on the share price. It wouldn't matter if the stock was trading on the moon," he says.

At the end of the day, however, a company's share-price performance is its own responsibility, he believes.

"It is up to the company and their advisers to get out there with a good story."

However, Mr Balfour declares himself a fan of dual listings, believing that a domestic investor base, with its own insight into and loyalty to local firms, can provide a useful counterweight to the international investor community.

"It is important for economies like Ireland to develop their own home-bred institutions, to have domestic institutions of relevance," he says. "US investors have an extraordinary amount of choice across the board. If you take a French high-tech company, an Irish one and an Israeli one and one of them issues a profit warning, we all know who'll get caned but it's easier for domestic institutions to be on top of the situation in their own markets."

Mr Balfour, who joined Nasdaq six years ago after a long career in investment banking in Britain, the US and Asia, believes Europe needs to work on developing its capital markets and at encouraging retail investors.

He particularly bemoans the fate of smaller companies in Europe as most institutional investors chase the same small pool of large firms while ignoring the opportunities that exist below a certain level.

Having spent more than 25 years in the investment industry, including stints with Paribas, Dillon Read and Hill Samuel, he also believes it is very important that all investors - including the smaller, retail investors - are properly educated to the risks of equity investment.

"It is important that they all have access to proper information and research and that they formulate ideas based on facts not speculation," he says. "There is a risk that people get into chat rooms and buy on the back of that but that can only end in tears."