Poor macroeconomic data crashes stock prices on the ZSE

The lack of encouraging news from the business sector and weak macroeconomic indicators are deterring investors from investing in risky assets, leading to a decline in stock prices on the Zagreb Stock Exchange last week, accompanied by low trading volumes.

The Crobex index moved within a very narrow range last week, sliding to 2,151 points on Friday, which is 0.9 percent lower than a week earlier. The Crobex10 weakened by 0.71 percent, to 1,153 points. Regular trading in shares amounted to around 100 million kuna, which is about 15 million less than a week earlier. “Next week, I expect the index and prices of blue-chip issues on the domestic market to move within narrow ranges. This will continue until the first catalyst, some news that will direct the market in one direction or another. Optimism from global exchanges is not reaching domestic investors, and one of the reasons is our macroeconomic situation,” says Dalibor Balgač, an analyst in the Economic Research Department of Hypo Alpe Adria Bank.

Last week, it was reported that in February there were 317,625 unemployed, which is about 55,000 more than in the same month last year and the highest unemployment level in the last five years. Furthermore, according to FINA data, total unpaid obligations of legal and natural persons reached 27.4 billion kuna at the end of January, which is 1.1 percent higher compared to December last year. Compared to January last year, they are up 45.5 percent or by 8.6 billion kuna. This is close to the record level of illiquidity from December 1999, when it amounted to 28.7 billion kuna. The most liquid last week, as usual, was the T-HT share, with a turnover of 33.4 million kuna. Its price weakened by 0.63 percent, to 317 kuna. Next is the Atlantska plovidba share with a turnover of 4.6 million kuna and a price drop of almost 3 percent, to 980 kuna.

Other shares in the shipping sector also decreased in price. The price of Jadroplov shares fell by 3.5 percent, to 167.8 kuna, and Tankerska plovidba by almost 2 percent, to 1,490 kuna. The Uljanik plovidba share also weakened by 1.17 percent, to 650 kuna, despite the company’s management announcing a proposal for a dividend advance payment for last year of 20 kuna per share. Last year, the company achieved a profit of 54.63 million kuna. The movements in the global shipping market did not favor shipowners either. The Baltic Dry Index (BDI) weakened by 3.6 percent last week, to 3,379 points, primarily due to a reduction in freight rates in Brazil and Australia, following strong Chinese imports of iron ore during January of 46.6 million metric tons. In the construction sector, however, there were also winners. The most liquid share, with a turnover of 4 million kuna, IGH, increased by 0.7 percent, to 2,508 kuna. The price of Dalekovod shares also rose by 2.5 percent, to 359 kuna, and Hidroelektra niskogradnje by 1.3 percent, to 227.67 kuna. However, the Ingra share weakened by 1.1 percent, to 39 kuna, while the price of Tehnika plummeted by 6.5 percent, to 1,505 kuna. The Viadukt share also weakened by 2.7 percent, to 316.11 kuna. Domestic investors did not receive encouragement from global exchanges either.

Indeed, last week, leading indices on them reached their highest levels in the last 17 months, but trading was cautious as macroeconomic data do not indicate an acceleration in the recovery of the largest global economies. “A positive trend is visible on global exchanges, but investors remain cautious. The focus is on leading macroeconomic indicators, which should show the pace of economic recovery. On the other hand, we are approaching the financial reporting season for the first quarter of this year, which will provide investors with new directions,” notes Balgač. The new financial reporting season is expected to begin after Easter. “With the expected recovery in revenues, the earnings of companies in the first quarter, and the earnings-to-price ratio will have a significant impact on investors when making further investment decisions. If earnings meet at least the lowest market expectations, this will justify the continued rise in stock prices,” assesses Balgač. In the domestic market, the season for the publication of financial reports for the first quarter of this year is expected to begin in about a month, but analysts’ expectations are not optimistic. “The cycle of negative conjuncture in the domestic economy is in full swing, which certainly affects the revenues of companies. We will likely see that company management will decide on more drastic cost-cutting measures during this period to maintain positive business operations. This is indicated, among other things, by the data on the strong increase in the number of unemployed in the country,” says Balgač. However, positive winds could reach the domestic market from abroad.

“Emerging markets have recently recorded significant capital inflows, indicating that investors are more inclined towards markets that are less burdened by debt problems than developed economies. At some point, part of that money will likely reach the domestic market, but not directly, rather through index funds that have baskets of Croatian shares in their structure,” concludes Balgač. After last week’s disappointing data on the jump in the number of unemployed above 317,000, the State Bureau of Statistics will publish a report on the unemployment rate in February on Monday. In January, it was 17.7 percent, and five macroeconomists in a Hina survey estimate, on average, that the unemployment rate in February rose to 18.3 percent, which would be its highest level since February 2006. On Wednesday, the DZS will publish data on industrial production in February, which will show whether the situation in the industry is stabilizing. In January, for the first time after 15 months of decline, industrial production increased year-on-year by 1.5 percent.

However, these are seasonally adjusted data that may significantly deviate from the original, calendar-unadjusted data. According to original indices, production stagnated year-on-year in January. Additionally, last year in the first two months, due to gas reductions, industrial production plummeted at double-digit rates, so the base is very low. In any case, analysts say that industrial production has likely reached its bottom and that it will fluctuate slightly in the coming months, while from summer, when orders from abroad begin to increase, it could grow steadily. Estimates from five macroeconomists who participated in the Hina survey range from a decline in industrial production in February of 2.5 percent to an increase of 3 percent. On average, they expect production to grow by 0.5 percent year-on-year. On Friday, the DZS will also publish the second estimate of gross domestic product for the last quarter of last year, which may differ from the first, published three weeks ago. According to the first estimate, in the fourth quarter of last year, GDP fell by 4.4 percent year-on-year, while the economy weakened by 5.8 percent in the entire year of 2009. (H)