Investors in Croatia Do Not React to Sharp Decline in Stock Prices

At the beginning of the week, there are no news on the Zagreb Stock Exchange to encourage investors to buy, therefore today a reduced demand for stocks and stagnation of the index is likely.

Of the 10 analysts from brokerage firms who participated in Hina’s survey, 8 expect stagnation of the Crobex today, while 2 expect a decline. Last week, the Crobex index weakened by 0.29 percent, to 1,824 points, while the Crobex10 fell by 0.58 percent, to 975 points. This marks the third consecutive week of falling stock prices, diving to the lowest levels in the last 11 months. Regular trading in stocks amounted to 60.5 million kuna, which is 7.5 million less than a week earlier. “Despite the strong growth of the major global stock exchanges, stock prices on the domestic market have plunged to the lowest level in the last 11 months, due to poor macroeconomic indicators that have worried investors,” emphasizes Žaran Perić, investment advisor at the investment company EA Sistem.

According to a survey by the Croatian Banking Association (HUB), the chief economists of the six largest banks have raised their estimate of this year’s GDP decline from 1.1 to 1.4 percent. Governor Željko Rohatinski also warned last week about the difficult economic reality and the necessity of implementing reforms, estimating that after last year’s GDP decline of 5.8 percent, this year’s economic decline could be around 1.5 percent. The negative sentiment in the market was also contributed by the decline in freight rates in the global shipping market for the 31st consecutive day. The Baltic Dry Index (BDI) fell last week to 1,904 points. The BDI index is strongly declining due to the delivery of newly built ships to the global fleet and weakening demand for bulk cargo transportation. It is concerning that the delivery of new ships is expected to accelerate in the second half of the year, with around 58 metric tons of new capacity expected to set sail in the world’s seas. Therefore, analysts estimate that the business environment for shipowners remains quite unstable. Perić adds that the week ahead will not bring significant changes to the domestic stock market.

“There are no news to encourage investors to decide to buy stocks despite the sharp decline in their prices since mid-April. This week we can expect reduced demand for stocks and trading volume, especially considering the announcement of new state borrowing at an attractive interest rate that will certainly attract domestic institutional investors. Therefore, I also expect stagnation in stock prices today,” assesses Perić. The Ministry of Finance announced last week that it is issuing 10-year bonds in the amount of 1.25 billion US dollars, with an interest rate of 6.625 percent, and their payment will be on Wednesday, July 14. The most important global indices rose sharply last week, with American indices up more than 5 percent, and the London FTSE index up more than 6 percent. “There was excellent sentiment in the global stock markets last week, as investors hope that the season of financial report announcements from American companies for the second quarter of this year, which begins today, will be better than analysts’ expectations,” notes Perić. Analysts estimate that the earnings of 500 companies whose stocks are included in the S&P index rose by 27 percent in the second quarter. The week on global exchanges began with a slight increase in stock prices. (H)