Investors Sell Shares to Meet Credit and Tax Obligations

Most analysts today expect an increase in stock prices on the Zagreb Stock Exchange, after the Crobex index fell below the psychological barrier of 1,400 points during trading yesterday.

Of the nine analysts from brokerage firms who participated in Hina’s survey, eight expect an increase in the Crobex today, while one expects a decline. The Crobex index plummeted 3.77 percent yesterday to 1,402 points, the lowest level since mid-October 2004. Regular turnover amounted to 27.4 million kuna."After the stock index tested the 1,400-point barrier, I expect a slight pause in the domestic market today and an increase in the Crobex. Every round number of the index represents a psychological barrier, regardless of what the technical picture of the market indicates. Furthermore, the strengthening of the most important global stock indices supports a change in sentiment in the domestic market," says Goran Vorkapić, broker and investment advisor at the brokerage firm To One.

Better news is coming from global stock exchanges compared to recent days. On Wall Street, the major stock indices have rebounded from their lowest levels in the last 12 years, jumping more than 3 percent on Tuesday. A bit of optimism was brought to the market by the statement from Fed Chairman Ben Bernanke that nationalization of banks is not necessary, which calmed investors who feared that an increase in government stakes in banks would mean the squeezing out of shareholders. Stock prices on most Asian exchanges also rose this morning as a result. On the Tokyo Stock Exchange, the Nikkei index jumped 2.6 percent, moving away from its lowest levels in 26 years.

However, Vorkapić emphasizes that it is difficult to be optimistic in the long term, given the difficult situation in which the Croatian economy finds itself."The average interest rate on the Money Market has reached a record 29 percent, indicating that the system is chronically illiquid. In such conditions, it is rare for anyone in the fund industry to opt for aggressive stock purchases; they will prefer to invest in less risky deposits," Vorkapić states.

Among today’s events, the meeting of the Economic Council stands out, where a package of anti-recession measures will be discussed. Meanwhile, yesterday the government requested savings from all budget users and public enterprises. As analysts point out, not much is expected in terms of anti-recession measures in the market. The director of the Croatian Banking Association (HUB), Zoran Bohaček, stated yesterday that the lack of adequate anti-recession measures is putting pressure on interest rates to rise.

"Many investors on the stock exchange at this moment are selling shares not because they do not believe in the recovery of the stock market, but because they are forced to do so to meet credit and tax obligations, which creates additional pressure on stock prices. Both citizens and companies are short on cash," notes Vorkapić. Yesterday, Standard & Poor’s downgraded the long-term credit rating of Hrvatska elektroprivreda for liabilities in foreign and domestic currency from ‘BBB’ to ‘BBB-‘, citing the weakness of HEP’s liquidity position and uncertainty regarding the financing of its large investment program in the next 12 months.

As noted by the Economic Research Department of Hypo Alpe Adria Group, this news could be negative for domestic companies that do business for HEP."A downgrade of credit ratings for other domestic companies is to be expected, given that they are facing a lack of funds to finance their projects in the domestic market, and the fate of infrastructure investments is also uncertain due to the lack of funds in the state budget. At the same time, it is difficult to break into foreign markets in recession conditions," concludes Vorkapić. (H)