Can the ‘stress test’ awaken domestic investors?

Positive signals are coming from global markets this morning as investors were encouraged by better-than-expected results from the ‘stress test’, but it remains questionable whether this will succeed in pulling investors on the Zagreb Stock Exchange out of their summer lethargy.

Of the 8 analysts from brokerage firms who participated in Hina’s survey, 5 expect stagnation of the Crobex today, while 3 expect an increase. Last week, the Crobex index weakened by 0.63 percent to 1,843 points, while the Crobex10 fell by 1.1 percent to 981 points. Regular trading in shares amounted to 80.4 million kuna, which is 9 million less than a week earlier.

“Although the season for announcing the business results of domestic companies has begun and although global stock indices have risen significantly, a lethargic mood prevailed on the Zagreb Stock Exchange last week, somewhat expected due to the time of year when most investors go on vacation. In such an environment, we cannot expect a significant reaction from investors this week either. However, as reports from Ericsson Nikola Tesla will be published on Tuesday and HT on Friday, I expect them to determine the direction of the index and set the mood of investors on the exchange,” says Žaran Perić, investment advisor at the investment company EA sistem.

Last week, stock prices on global exchanges rose significantly as most American companies reported better quarterly business results than expected, alleviating fears of a slowdown in the recovery of the global economy. On Wall Street, the Dow Jones rose by 3.2 percent, and the Nasdaq index by 4.2 percent. The S&P 500 jumped by 3.5 percent, breaking above the psychologically important level of 1,100 points for the first time in a month.

“Last week’s rise in the most important global stock indices is solely due to better-than-expected financial reports from a number of companies and banks for the second quarter, while macroeconomic indicators indicating a slowdown in the American economy have taken a back seat, as confirmed by Fed Chairman Ben Bernanke in his report to Congress,” says Perić. This week, a report on new home sales in June will be published. An increase in sales is expected, as well as an increase in orders for durable goods in the industry in June.

Investors will also focus on the consumer confidence report, and the most important data, on gross domestic product, will be published on Friday. Analysts estimate that the first data will show that the American GDP grew by 2.5 percent in the second quarter. Asian and European markets reacted positively today to the ‘stress test’, which checks how European banks would cope with a possible deterioration in the economic situation, published last Friday after the closure of European exchanges. It turned out that only 7 out of 91 European banks did not pass this stress test and would need to be recapitalized.

“Given the good morning start of trading on European exchanges and the rise of the euro against the dollar, the results of this test did not worry investors. However, I expect that domestic investors will not react to the results of this test, as they will wait for the announcement of results from Ericsson Nikola Tesla and HT for new directions, so I expect stagnation of the index today,” concludes Perić.

Some analysts in Hina’s survey indicate that shares of SN Holding and Liburnija Riviera Holding (LRH) could be more in focus for investors, after the government decided on Friday to transfer 54.83 percent of LRH shares to SN Holding free of charge, with the aim of resolving all ongoing disputes between SN Holding and the Croatian Privatization Fund (HFP). (H)