After five weeks, the decline in prices on the ZSE has been halted

Last week, the Crobex index of the Zagreb Stock Exchange managed to break a 5-week negative streak, thanks to positive signals from global exchanges and a reflexive ‘bounce’ after a 12% downward correction since the end of April, but due to low liquidity, it is questionable whether the market will have the strength to continue its recovery.

Last week, the Crobex index broke a 5-week negative streak, closing trading on Friday at 2,002 points, which is 0.41% higher than a week earlier. Crobex10 strengthened by 0.5% to 1,078 points. Regular trading volume amounted to 100 million kuna, which is about 21 million less than the previous week. From its highest level this year of 2,215 points, reached on April 26, until Tuesday, May 25, when trading ended at 1,948 points, the Crobex fell by 12%. “After some important technical supports were broken on Tuesday, and the Crobex sank 12% from its peak at the end of April, a reflexive bounce followed in the market. It remains to be seen whether the domestic market will have the strength for a more sustainable rise,” says Dalibor Balgač, an analyst in the Economic Research Department of Hypo Alpe Adria Bank. Given that the domestic market now significantly correlates with global exchanges, its recovery has been closely linked to the recovery that dominated global exchanges in the middle of the week after a sharp negative correction in stock prices since the end of April.

“Negative corrections in bull markets usually reach up to 10%, after which a reflexive recovery follows. Further movements in global exchanges will be influenced by the resolution of the European debt crisis. Macroeconomic indicators will again be in focus for investors, as they want to see whether the economic recovery is sustainable,” says Balgač. With large daily fluctuations, the Dow Jones index on Wall Street weakened by 0.6% last week, while the S&P 500 strengthened by 0.2%, and the Nasdaq index by 1.3%. On European exchanges, however, stock prices rose last week. The London FTSE index jumped by 2.5%, while the Frankfurt DAX strengthened by 2%, and the Paris CAC index by 2.5%. “After the S&P 500 index rose from its lowest levels in March last year to the end of April by approximately 70%, and its decline in the last month by approximately 15%, it is likely to continue moving in a narrow range in the medium term until investors gain a clearer picture of the situation in the US economy. It is also questionable whether the S&P has reached its bottom, as a correction of up to 20% is possible after a 14-month rise. Therefore, the further direction of the market is quite uncertain,” assesses Balgač. New guidelines for investors will be provided next week by the release of key employment indicators in the US for May. Almost half of last week’s trading volume in shares on the domestic market, or nearly 49 million kuna, was achieved by shares of HT. After the price of HT fell to 256 kuna on Tuesday, the lowest level since mid-September 2009, it seems to have become attractive to investors.

By the end of the week, their purchases raised its price to 269.2 kuna, which is a weekly increase of 2.26%. In the shipping sector, shares of Jadroplov, Atlantska plovidba, Tankerska plovidba, and Uljanik plovidba rose between 0.6% and 3.2%. The construction sector, however, continued to record losses. The prices of shares of IGH, Dalekovod, Tehnika, and Ingra fell between 0.8% and 2.2%. The only stock that ended the week in the positive was Viadukt, which increased by 4.3%. “The domestic market will continue to correlate with movements in global exchanges in the upcoming period. However, it is questionable whether it will have the strength for a more sustainable recovery in the coming weeks. Many investors are still ‘on the sidelines’ waiting for signals that could direct the market either positively or negatively. Currently, we could say that investor sentiment is between neutral and positive,” notes Balgač. However, positive signals from the domestic economy have not yet arrived. The State Bureau of Statistics announced on Friday that the gross domestic product in the first quarter of this year fell by 2.5% compared to the same period last year, which is a greater decline than expected, but also the lowest rate of decline since the beginning of last year when the economy plunged into recession.

Nine macroeconomists who participated in a Hina survey expected, on average, that the GDP decline in the first three months of this year was 2%. A report on retail trade is expected to be released on Monday. In March, the decline in consumption pleasantly surprised with only a 2.8% drop compared to the same month last year, which is the lowest rate of decline in consumption in 18 months. However, macroeconomists estimate that the rate of decline in consumption in April will be higher than in March. Five macroeconomists who participated in the Hina survey estimate that retail sales in April fell between 3.3% and 5.3%. On average, they expect a decline of 4.3% compared to the same month last year. This is a consequence, as they state in the survey, of a decrease in disposable income, negative trends in the labor market, real wage declines, and a weakening of credit activity towards the population. (H)