Budget rebalancing and the latest data on gross domestic product indicate a continuation of the grim picture of the domestic economy, leading to a decline in stock prices on the Zagreb Stock Exchange last week, alongside thin trading volumes.
Last week, the Crobex index weakened by 0.97 percent, to 1,855 points. Given the lack of encouraging news from the domestic economy, analysts believe it will be difficult to soon break out of the range of 1,830 to 1,880 points, where it has been moving in recent weeks. The Crobex10 index weakened by 0.84 percent last week, to 986 points. Regular trading amounted to 77.2 million kuna, which is about 9.5 million less than the previous week. “Last week’s rebalancing of the state budget and the latest GDP data indicate a rather grim picture of the domestic economy, which is one of the main reasons why investors are largely staying on the sidelines in the domestic capital market. The domestic market will only be able to pull itself out of its prolonged lethargy through influences from global exchanges,” says Dalibor Balgač, an analyst in the Economic Research Department of Hypo Alpe Adria Bank.
Last week, the government adopted and the parliament discussed the proposal for the rebalancing of the state budget, which foresees a reduction in budget revenues by 4.5 billion kuna, while budget expenditures increase by 898 million. This increases the deficit of this year’s budget by 5.4 billion kuna, to 14 billion kuna, or 4.2 percent of GDP. This was an unpleasant surprise for analysts and market participants, who expected sharper cuts in state spending. At the end of the week, the State Bureau of Statistics announced that gross domestic product in the second quarter of this year fell by 2.5 percent compared to the same period last year, which is the same rate of decline as in the first quarter, but higher than expected. Eight macroeconomists who participated in a Hina survey estimated, on average, that the economy’s decline in the second quarter was 2.3 percent. In the anemic trading on the stock exchange, the focus of investors was typically on HT shares, which accounted for almost a third of total regular trading, around 25 million kuna. Its price weakened by 0.43 percent, to 257.4 kuna. Significant trading was also achieved with the preferred shares of Adrisa, 6.8 million kuna, with its price falling by 0.77 percent, to 255 kuna.
The shares of Čakovečki mlinovi were also of somewhat greater focus for investors, with a trading volume of 6.5 million kuna, and its price strengthened by more than 3 percent, to 3,400 kuna. No encouraging signals came from global exchanges last week either. On Wall Street, the Dow Jones index weakened by 0.6 percent, to 10,150 points, while the S&P 500 fell by 0.7 percent, to 1,064 points. On most European exchanges, stock prices also fell last week. However, the London FTSE index strengthened by a meager six points, while the Frankfurt DAX fell by 0.9, and the Paris CAC by 0.54 percent. “There is a negative sentiment on global exchanges as the disappointing macroeconomic indicators have once again brought to the forefront the risks of a double-dip recession in the U.S., and investors have been discounting this in stock prices for some time now,” emphasizes Balgač.
Nevertheless, investor expectations regarding economic prospects are still divided. “Some investors believe that a new recession is inevitable, while others believe it is merely a slowdown in economic growth. It is still difficult to determine, as macroeconomic indicators so far only suggest a slowdown in recovery. However, trading volumes are quite weak during price increases, and higher during declines, indicating that investors are increasingly cautious,” notes Balgač. New guidelines will be provided to investors next week by data on industrial procurement and the employment report in the U.S. The small loss of the S&P 500 index last week does not actually reveal the strength of the battle between ‘bulls’ and ‘bears’ that took place on the floor of the New York Stock Exchange, says Marko Erdeljac, head of the retail desk at Erste Securities. As he adds, the week on Wall Street started quite well for the ‘bull camp’, but prices soon fell. Discouragement from the sudden market drop continued a series of volatile days and a trading range in the middle of the week.
