Global Economy on Its Knees, Domestic Investors in Fear

On the Zagreb Stock Exchange, most analysts today expect a continuation of the negative trend due to falling stock prices on global exchanges, where fear of recession prevails. Due to the panic in the market, some stocks are already in the ‘oversold’ area.

Of the eight analysts who participated in Hina’s survey, four expect a decline in Crobex today, three expect stagnation, and one expects an increase. The Crobex index fell by 1.6 percent yesterday, to 2,373 points. Regular trading in shares reached nearly 55 million kuna. "Due to the negative sentiment on global exchanges, I do not believe there will be any recovery in the domestic market. In any case, volatility is high as there are no guidelines until it is seen how long and how deep Western economies will be in recession," says Dalibor Balgač, investment advisor at Abacus brokers.

On Wall Street, the Dow Jones and S&P indices rose on Thursday thanks to rising stock prices in the energy sector, driven by an increase in oil prices, and a recovery in the pharmaceutical sector. However, trading proceeded without clear direction, with stock prices fluctuating, rising and falling by as much as 7 percent. In Asian markets, however, a strong decline in stock prices continued today as the weakening global economy prompted many companies to lower their forecasts for future business results and employee numbers. The Nikkei index of the Tokyo Stock Exchange plummeted by as much as 9.6 percent, and European stock prices also fell at the beginning of today’s trading.

"Currently, the focus of investors is on the financial reports of American, European, and Asian companies for the third quarter, which are very negative and many contain profit warnings. This was to be expected after the global financial crisis. It is definitely evident that the real economy in the West is on its knees, which is why we are witnessing such large sell-offs of stocks," emphasizes Balgač. The financial reports of domestic companies published so far for the first nine months are excellent, analysts agree. "However, investors here do not react to such news, probably looking to the future, where a slowdown in growth is expected," assesses Balgač.

The Croatian Employers’ Association (HUP) yesterday proposed eight measures to the government that would help domestic companies survive the recession in the Western economy. In addition to reducing public spending, among other things, they are asking the government to maintain real wages through tax relief, prevent the spread of illiquidity by ensuring that the state regularly meets its obligations to the economy, and redirect state investments to sectors and economic entities that provide economic effects in the short term. "This is a signal that the situation is becoming increasingly difficult for the domestic economy. It is evident that the European economy, on which we are quite dependent, will enter a recession if it has not already, thus demand from Europe will certainly weaken," says Balgač.

Uljanik Plovidba reported yesterday that the current financial crisis will not affect its operations this year or next year as all ships in its fleet have been timely and long-term contracted. However, the price of its stock plummeted by almost six percent, to 800 kuna. The prices of shares of other shipping companies also continued to fall sharply. "Investors simply do not want to hear positive news due to the negative environment. They are constantly bombarded with texts about the arrival of recession, large losses of global banks and companies, so they react with excessive fear, even though a recession is not in sight here, but rather a slowdown in growth. Due to the panic prevailing in the market, some stocks are already in the ‘oversold’ area," believes Balgač.

He adds that the shipping sector worldwide is currently in collapse, but it is unrealistic to expect that such a state in the shipping market will be sustained in the long term. "In Croatia, we do not have a credit or economic crisis, but only a crisis in the capital market, caused by negative sentiment and distrust due to global trends. Yet, the domestic capital market has not been hit as hard as most other emerging markets, which have been nearly devastated by the withdrawal of foreign investors," concludes Balgač for Hina’s financial service.