Concerningly Low Liquidity on the ZSE

On the Zagreb Stock Exchange, most analysts today do not expect a spillover of positive trends from global exchanges, as chronically low liquidity deters the already few investors from investing in stocks.

Of the eight analysts from brokerage firms who participated in Hina’s survey, six expect a continuation of stagnation in the Crobex index today, one expects an increase, and one expects a decrease. The Crobex index rose by 0.56 percent yesterday, to 3,475 points. The regular turnover in shares amounted to 48.4 million kuna.

“Due to ‘local’ problems, I do not believe that part of yesterday’s positive movements on global exchanges will spill over to the domestic market today, therefore I expect a continuation of lethargy. In addition to chronically low liquidity, domestic investors are also nervous about the takeover of INA. They are hungry for information about the details of MOL’s offer and currently do not know what moves to make,” says Dalibor Balgač, investment advisor at Abacus brokers.

Thanks to an unexpectedly strong growth of the US GDP in the second quarter and a drop in oil prices, leading indices on Wall Street rose by more than 1 percent on Thursday. In recent days, there have been frequent ownership reshuffles among major players in certain stocks, most often in block transactions.

“Partially, such reshuffles ‘artificially’ raise the concerningly low liquidity in the domestic market. In the eyes of foreign investors, for whom the liquidity of individual stocks is the most important investment criterion, the domestic stock exchange appears even less attractive due to low liquidity,” believes Balgač.

Hina’s survey shows that a greater focus of investors is expected again only on the most liquid issues – shares of INA, T-HT, and certain shipping and construction companies. A greater focus, some analysts emphasize, is also possible on the Dioki stock, in anticipation of a forthcoming decision on the location of the LNG terminal construction.

On the global shipping market, spot freight rates continue to decline, and the Baltic Dry Index (BDI) weakened by 1.72 percent yesterday, to 6,929 points. As Balgač points out, the reason for this is primarily the drop in spot market freight rates, while futures contracts for shipping for the fourth quarter are recording levels 30 to 35 percent higher than spot rates.

“Some investors on foreign exchanges expect a stronger recovery of freight rates in that market in the fourth quarter. Those betting on a rising trend in freight rates support this with the fact that the grain season is starting in the northern hemisphere, with large quantities expected for transport as their production has increased this year due to rising prices in commodity exchanges. This should primarily help the rise in freight rates for panamax ships,” says Balgač. He adds that the season for increasing coal stocks before winter is also starting soon, and the monsoon period in India is ending, so an increase in transport activity to Indian ports can be expected in September.

“The risk comes from China’s activities, which is otherwise a generator of growth for the capesize freight index. Yesterday, the index for capesize ships weakened by 2.7 percent. China currently has very large stocks of iron ore. If it continues to accumulate stocks as it did in the second quarter of last year, the demand for shipping will be enormous, and record levels of the BDI can be expected,” explains Balgač.

He adds that the situation in the shipping sector largely depends on global economic growth, which shows signs of slowing down. On the other hand, there have also been frequent cancellations of shipbuilding orders. “JP Morgan analysts expect cancellations of between 30 and 40 percent of shipbuilding orders due to the consequences of the financial crisis and increasingly difficult access to money. This will continue to make the shipping sector very challenging,” emphasizes Balgač.

Among today’s significant business events is the General Assembly of shareholders of Lošinjska plovidba, where a decision will be made on the payment of a dividend of 10 kuna per share. The Management and Supervisory Board propose that from last year’s profit of 8.54 million kuna, 6.62 million kuna be allocated for dividend payment, 7,370 kuna for covering the carried-over loss, and the remainder for retained earnings and for the payment of bonuses to the Management.

Shareholders of Tankerska plovidba will decide on the payment of a dividend of 55 kuna per share. The Management and Supervisory Board propose that from last year’s profit of 217.14 million kuna, 34.5 million kuna be allocated for dividend payments, 36 million for profit shares to Management members and employees, and the remaining amount be placed in retained earnings.

Shareholders of Metalska industrija Varaždin will decide on the Management’s proposal to allocate last year’s profit of 104,832 kuna to retained earnings. The General Assembly of Zagrebačke pekarni Klara will decide on covering last year’s loss of the company amounting to 2.55 million kuna from retained earnings of 2006, while shareholders of Pounja will decide on the Management’s proposal to use last year’s profit of 318,632 kuna to cover losses from previous periods. (H)