Zagreb Stock Exchange Has Become a True Paradise for Speculators

After a sharp correction in stock prices a week prior, during which Crobex lost about a quarter of its value, the Zagreb Stock Exchange experienced one of its most turbulent periods last week.

With unpredictable and rapid changes between euphoric and depressive phases in the market, causing stock prices to rise sharply and then fall, with more than 40 stocks sometimes in positive and sometimes in negative blockades daily, the Crobex index managed to close last week with a gain of 14.59 percent, reaching 2,531 points.

"With the high volatility that characterized last week’s trading on the domestic market, the Crobex index closed the week below the level of 2,600 points. The technical picture indicates, however, that the key support level is located at the 23.6 percent ‘retracement’ of the rising trend from 2002 to 2007, which is at 2,042 points," says Goran Nimac, an analyst in the Economic Research Department of Hypo Alpe Adria Group.

Regular trading in stocks reached 568.4 million kuna last week, which is almost 100 million kuna more than the week before. Almost a fifth of the turnover was achieved by T-HT shares. Its price fluctuated between 227 and 264 kuna, and it closed the week at 245 kuna, which is 12.38 percent higher than the week before. Significant turnover of 98 million kuna was also achieved by Atlantska Plovidba shares. Its price varied from 1,190 to 1,598 kuna. It closed the week at 1,190 kuna, representing a weekly increase of 5.31 percent.

Significant turnover was also achieved by Ericsson Nikola Tesla shares. With a turnover of 38.5 million kuna, its price rose by 5.67 percent to 1,490 kuna.  "From a fundamental perspective, we expect about a 5 percent increase in the company’s revenue in 2008, along with continued pressure on the gross profit margin, consequently from acquiring new clients. However, directing the production mix towards higher-margin businesses, such as system integrations and monitoring and management services, should stabilize the company’s gross profit margin in the medium term," emphasizes Nimac.

Trading in INA shares, on the other hand, was significantly reduced after the sale of shares to MOL. Last week, it achieved a turnover of 29 million kuna, and its price rose by 13 percent to 2,430 kuna. On Friday, MOL paid 6.2 billion kuna to the accounts of small investors, pension and investment funds for INA shares sold as part of its public offering.

Last week, trading in Podravka shares was also intensified. With a turnover of 15.5 million kuna, its price remained unchanged at 295 kuna. "This stock has come into greater focus for investors due to management’s announcement that the company plans to end the current year with multiple growth in operating profit. From a fundamental perspective, we believe that the company’s restructuring process aimed at reducing employee costs is crucial for improving Podravka’s operational profitability, given the still high share of employee costs in total costs compared to peer companies," says Nimac.

And while the global financial crisis is gradually calming down, and governments and central banks around the world are decisively taking action to rescue struggling banks and restore confidence among them to reactivate the credit market, there are increasing signs that the Western world is sliding into recession.  The financial crisis has bypassed the Croatian economy, and what impact the decline of the US and Western Europe into recession will have remains to be seen. So far, most economists estimate that economic growth next year will slow to a maximum of three percent. And the extremely high volatility in recent days on the Zagreb Stock Exchange has been, analysts say, a true paradise for speculators. However, it could somewhat decrease next week.

"In the coming days, we expect a reduction in market volatility due to a somewhat more stable situation with the liquidity of open investment funds and due to the inflow of money from the sale of INA shares, part of which will flow back to the stock exchange. This is buying power that at this moment is unlikely to rush into raising stock prices, but will affect their stabilization and make the sentiment on the exchange slightly positive," says Tihomir Antunović, an investment advisor at Agram Brokers.  As he adds, the reduced quantity and value of stocks held in the portfolios of open equity and mixed investment funds, which is almost 80 percent lower than this time last year, as well as the fact that funds have managed to find much-needed liquidity on foreign exchanges, especially in Serbia, even at significantly lower price levels, indicate that we are at the bottom of the market.

"Domestic open investment funds have managed to liquidate certain positions on the Serbian market, thereby managing to gather some liquidity. I assume that due to this, the intense pressure to sell is coming to an end, and that in the coming days there will not be aggressive sales by investment funds on the domestic market," says Antunović. He believes that the role of the main players in the market will now be taken over by mandatory pension funds and small investors, who will likely reinvest part of the money from INA shares back into stocks.
"A certain number of clients are aware that the prices of shares of certain companies are now truly attractive, and they are deciding to buy at this moment," concludes Antunović. (H)