Crobex Continues Negative Trend

Due to low liquidity and gloomy forecasts regarding the domestic economy, the Crobex index of the Zagreb Stock Exchange continued its negative trend last week, recording a decline in eight of the last nine weeks.

The Crobex index fell by 4.3 percent last week to 1,977 points, the lowest level since August 21, when it was at 1,963 points. The Crobex10 weakened by 3.7 percent to 1,053 points. Regular trading in shares was below 90 million kuna, which is 22 million kuna less than the week before. “The drop in Crobex last week to the lowest levels since August indicates that the usual surge at the end of the year will likely be absent,” says Goran Nimac, an analyst in the Economic Research Department of Hypo Alpe Adria Bank. However, he adds that negative economic expectations for next year are already largely factored into current price levels. “Last week, some large domestic companies, such as Končar, hinted at what the domestic real sector can expect next year in terms of demand. The management of the Končar Group announced that it expects a decline in sales revenue of about seven percent this year and next year. In addition to weaker demand, (in)liquidity will also represent one of the biggest problems for domestic companies in 2010,” notes Nimac. Last week, the most liquid stock on the Zagreb Stock Exchange was T-HT, with a turnover of 25 million kuna. Its price weakened by 0.95 percent to 270 kuna.

In the construction sector, stock prices continued to fall sharply after news of reduced activity in construction and weak forecasts for next year. Thus, the stock of IGH, with a turnover of 5.6 million kuna, fell by 10.3 percent to 2,620 kuna. The stock of Dalekovod recorded a price drop of 4.7 percent to 327.4 kuna, and Ingra by 6.8 percent to 41 kuna. The shipping sector also did not escape a sharper correction as last week the Baltic Dry Index (BDI) sharply fell by 8.9 percent to 3,258 points. The price of the stock of Atlantska plovidba weakened by 5.2 percent to 950 kuna. The stock of Jadroplov fell by 11.9 percent to 163 kuna, Tankerska plovidba by 11.7 percent to 1,431 kuna, and Uljanik plovidba by 9.4 percent to 590 kuna. Support for investors did not come from global markets either, where trading was cautious last week. Many investors on those markets have already closed their books, satisfied with their earnings this year, as economic news is not good enough to take additional risks. On Wall Street, the Dow Jones fell by 1.3 percent, and the S&P 500 index by 0.3 percent. However, the Nasdaq index jumped by 1 percent, thanks to very good business results from several technology companies. On most European exchanges, stock prices fell last week. The London FTSE index weakened by 1.24 percent, while the Paris CAC fell by 0.24 percent.

The Frankfurt DAX, on the other hand, rose by 1.30 percent. “Last week, investors on foreign exchanges were primarily concerned about the announcement from the U.S. Federal Reserve regarding a possible withdrawal of liquidity from financial markets next year, which translates to a shortage of cheap money, and thus less impetus for stock price growth,” emphasizes Nimac. The Fed’s decision to withdraw excess liquidity will largely depend on the speed of recovery of economic activity in the upcoming quarters and the state of the U.S. labor market, adds Nimac. “If employment in the U.S. shows recovery in the first quarter of next year, the Fed could begin to communicate more decisively the end of accommodative monetary policy,” believes Nimac. In the coming days, the mood of investors in global markets will be most influenced by the results of the third estimate of U.S. Gross Domestic Product for the third quarter, says Nimac. The decline in industry is slowing, and the unemployment rate is rising. Here, several reports are also expected to show the situation in the domestic economy. Thus, on Monday, the State Bureau of Statistics will publish data on the unemployment rate for November.

Recently, the Croatian Employment Service reported that at the end of November, there were 282,936 unemployed persons, which is 9,671 persons or 3.5 percent more than the previous month, and 49,275 persons or 21.1 percent more than in November last year. Six analysts in a Hina survey estimate that the rate will reach between 15.9 and 16.5 percent. On average, they expect it to be 16.2 percent, while in October it reached 15.5 percent, the highest level since April 2007. On Tuesday, the DZS will publish a report on industrial production for November. In October, industrial production fell for the 13th consecutive month, by 8.6 percent compared to the same month last year, which represents a moderation of the decline compared to the previous month. In a Hina survey, six analysts expect further slowing of the industrial decline, with their estimates ranging from 6 to 8 percent. On average, they expect a weakening of industrial production by 7.2 percent. (H)