MOL Boosts Crobex into Positive Territory

MOL’s interest in purchasing shares of INA from small and institutional investors has prompted a rise in the Crobex index on the Zagreb Stock Exchange for six consecutive days, marking its longest positive streak since August, and the upward trend could continue into next week, especially if encouraging news continues to arrive from global markets.

The Crobex index jumped 4.3 percent last week, reaching 1,893 points, while Crobex10 strengthened by 4.04 percent, reaching 1,002 points. Both indices reached their highest levels since the end of October. Regular trading amounted to 103.9 million kuna, which is about 4 million more than the week before.

“Due to MOL’s intention to buy shares of INA from small investors and funds, as well as the continuous arrival of positive signals from global markets, there was a good mood on the domestic stock exchange last week, and this could continue into next week,” says Dalibor Balgač, an analyst in the Economic Research Department at Hypo Alpe Adria Bank. As MOL aims to acquire 8 percent of INA shares, offering a price of 2,800 kuna per share, this amounts to a total of 2.2 billion kuna of fresh capital that could flow into Croatia.

“Assuming that even a small portion of the money from the sale of INA shares returns to the market, say up to five percent, this would mean extra liquidity of up to 100 million kuna. In an extremely shallow market like the domestic one, such an amount will significantly strengthen foreign demand,” Balgač assesses. For this reason, some investors have decided to position themselves ahead of the expected wave of investments in other blue-chip stocks, raising prices of almost all liquid issues, Balgač adds.

“It is difficult to speculate when trading in INA shares might resume, but in any case, it will positively affect the domestic market. I believe that MOL’s valuation of free-float INA shares significantly above their market price positively influences investors psychologically. It is possible that this will encourage them to reassess the fair value of other domestic stocks,” Balgač says.

Prime Minister Jadranka Kosor stated on Friday evening that the government is on the trail of a solution regarding MOL’s offer, which will be in line with Croatia’s strategic and national interests. The Ministry of Economy announced earlier on Friday that the government does not renounce its rights and possibilities to adopt different legal and institutional solutions regarding the status of the contracting parties, as well as to protect strategic interests in the energy sector. The positions emphasize that the government will respect and execute all formal agreements and contracts, and will also accept informal agreements with all investors whose goals and intentions align with the government’s objectives in terms of protecting ownership, investment, and management in the energy sector.

The most liquid stock last week was HT’s share, with a turnover of 36.2 million kuna. Its price strengthened by 1.39 percent, to 272.66 kuna. Following in turnover is the preferred share of the Adris Group with 7.4 million kuna and a weekly price increase of 3.65 percent, to 270.94 kuna. Dalekovod’s shares traded at 7.03 million kuna, and its price rose by 9.35 percent, to 251.50 kuna. The share of Zagrebačka banka recorded a price increase of 8.55 percent, with a turnover of over five million kuna.

Shares of Ericsson Nikola Tesla and Atlantic Group achieved over four million kuna in turnover, both recording price increases – Ericsson by 5.66 percent and Atlantic by 0.25 percent. The biggest winner was the share of Luka Ploče, with a price jump of as much as 32.8 percent, to 1,700 kuna, with a turnover of 2.26 million kuna. During the week, it even reached 1,900 kuna. The supervisory board of the company adopted a proposal at a meeting on Wednesday to hold an Extraordinary General Meeting of shareholders on January 31 next year, where, among other things, a decision on recapitalization will be made.

It is proposed to increase the share capital of Luka Ploče from 89 million kuna by up to 132 million kuna, by issuing 330,000 new ordinary shares in the name, at a nominal price of 400 kuna. Existing shareholders of Luka Ploče who have the status of shareholders on the day of the decision on recapitalization will have the right to subscribe in the first round. Encouraging signals also arrived from global markets last week. Thanks to good macroeconomic data indicating the strengthening of the largest world economy, stock prices on global exchanges reached their highest levels in over two years.

On Wall Street, the Dow Jones index strengthened by 0.2 percent last week, the S&P 500 by 1.28 percent, and the Nasdaq index by 1.8 percent. The S&P index reached its highest level since September 2008, and the Nasdaq index since December 2007. Stock prices also rose on European exchanges. The London FTSE index strengthened by 1.16 percent, while the Frankfurt DAX rose by 0.84 percent, and the Paris CAC by 2.85 percent. The FTSEurofirst index of the 300 leading European stocks reached its highest level since September 2008 last week.

“We are witnessing a surge in stock prices on global exchanges ahead of the year’s end. The rise in yields on 10-year U.S. Treasury bonds above 3 percent, as well as the fact that key stock indices are breaking this year’s highest levels, indicate that investors are beginning to focus on economic growth in both government debt and equities. A reversal of the positive trend could only occur with a renewed outbreak of the debt crisis in the peripheral eurozone countries coming to the forefront,” Balgač assesses.

Next week, data on U.S. retail sales will be released, and a regular Fed meeting is also expected. “Investors will closely analyze every macroeconomic indicator until the end of the year, with a special focus on the labor and real estate markets in the U.S., in anticipation of confirmation of the validity of the positive price trend,” concludes Balgač.

Technical Analysis of the S&P: Resistance to the Upward Trend at 1,250 Points

The most important U.S. index, the S&P 500, rose further by 1.28 percent last week, to 1,240.40 points. “After an attempt to cool the market at the beginning of the week, prices continued their upward path over the last three trading days, albeit with slightly reduced intensity compared to the previous week,” emphasizes Marko Erdeljac, head of the retail index at the investment company Erste Securities. The rise in stock prices is correlated with a drop in the VIX index of the Chicago Board Options Exchange below the threshold of 18 points, to 17.61 points. During the week, the VIX was at lower levels, but a sudden increase in the last hour of trading on Friday managed to save it from a sharper decline. The euro exchange rate against the dollar fell last week from 1.34 to 1.322. The rise of the dollar did not hinder the stock bulls, but the movement of this currency pair will be important to monitor in the coming weeks to assess stock price movements in the near future, notes Erdeljac.

“With the S&P breaking above resistance levels last week, we are approaching a reference point at 1,255 points. The entire zone between 1,250 and 1,255 represents the first major resistance to this upward trend. As the trend is still positive, and the end of the year approaches, we can expect an interesting battle between bulls and bears for dominance over this point in the coming weeks,” assesses Erdeljac. Any rise in the S&P this year and finishing the year above 1,255 points should be accompanied by a further decline in the VIX ‘fear index’ and a continuation of the weakening of the U.S. dollar.

“The VIX itself could indeed play a major role, which needs to be closely monitored in the coming weeks. If it finishes the year below the threshold of 18 points, it would give bulls support to at least start the next year on a positive note. A rise in the VIX would, however, give bears a chance to attempt to cool the market,” Erdeljac believes. In addition to monitoring the movement of the VIX and the euro-dollar relationship, it is important to keep in mind that the positive trend is still ongoing, says Erdeljac. However, he adds that this vigorous rise in the last two weeks has approached the reference point of 1,255 points, where the resistance zone lies.

“Reference points are very important points below and above which the biggest battles between bulls and bears are fought. In the event of losing the battle over the aforementioned reference point, the first important support for the S&P is in the zone of 1,228 to 1,230 points. A drop below this zone could widely open the door for testing the boundary of 1,200 points. A drop below 1,200 or, more precisely, 1,205 points would be an opportunity to attempt testing the reference point of 1,170 points below which one could consider the end of the upward trend and a more serious correction,” concludes Erdeljac.

* HAAB directs readers of this text to the website http://www.hypo-alpe-adria.hr, where all legal disclosures necessary for the preparation and publication of investment research are contained.