The result of the sentiment index from the February survey is -14.38 percent, indicating a slightly higher prevalence of bearish sentiment among professional investors compared to a month earlier when considering all types of securities.
When we break down the asset classes, we see that investors are 3.33 percent predominantly bullish on stocks, and 2.63 percent predominantly bullish on commodities, while they are predominantly bearish on bonds (37.5 percent) and the money market (18.77 percent), according to the iCapital report.
The index range is from -1 to 1 (or from -100 percent to 100 percent), where -1 represents extreme bearish sentiment while 1 represents extreme bullish sentiment. Bullish sentiment represents expectations for asset price growth (reflecting optimism or positive sentiment), while respondents with bearish sentiment expect asset price declines. The weights in the index for different asset classes are as follows: 35 percent for stocks and bonds, and 15 percent for commodities and the money market.
Croatian professional investors still believe that joining the EU is the most significant (positive) event for the stock market, with a slightly lower percentage than in January (60 percent) considering it undervalued. Seventy percent expect further growth of the CROBEX, while they are bearish on other indices (DAX and S&P). Generally, they are bullish on stocks and commodities (though less than in January), and even more bearish on bonds. In February, they were most bullish on the stocks of Končar EI, Ericsson NT, Adris, Riviera Adria, Belje, and Podravka.
The same percentage of respondents as in January (70 percent of the 20 who participated in the February survey) believe that Croatia’s accession to the European Union will have the most significant impact on the Croatian stock market in the next 12 months. They unanimously consider this event positive for the stock market.
In addition to EU accession, a smaller percentage of financial experts believe that other events will have the greatest impact on the Croatian stock market:
· sale of state-owned companies (15 percent vs 20 percent in January) – this scenario is unanimously considered positive
· impact of the European debt crisis (15 percent vs 5 percent in January) – this scenario is unanimously considered negative
Respondents among the offered answers regarding the events they believe will have the most positive impact on the stock market in the next quarter chose similar answers as in January. Fifty percent of respondents expressed support for improving market liquidity (vs 60 percent in January), a slightly higher percentage of respondents for potential privatizations compared to January (35 percent vs 30 percent), and for potential acquisitions in the region, 15 percent (this answer was not represented in January 2013).
Responses to the same question, but with a longer horizon of 12 months, were distributed similarly to January, with 40 percent (vs 45 percent) believing that the decline in risk premiums with EU accession will have the most significant impact. Thirty-five percent of respondents, slightly more than last month (30 percent), consider potential privatizations the second most significant event, while 10 percent of respondents in February believe that GDP growth and other events such as the tourist season will have the most significant impact on the stock market.
Opinions on the most negative impact on the market in the next three months are mostly the same as in January. Thirty percent of respondents (vs 35 percent) still consider further declines in consumption and rising unemployment the most influential factor, while 25 percent of respondents (vs 35 percent) believe that company results in 2012 will have the most significant negative impact on the markets. Twenty percent consider the potential bankruptcy of some companies the most influential event.
In the one-year period, respondents ranked further declines in consumption and rising unemployment first (35 percent, as in January), while 25 percent consider company results the most significant event, and 20 percent of respondents indicated the potential bankruptcy of some companies as the most significant event.
When asked about their expectations regarding Croatian GDP for 2013, respondents answered as follows:
• 75 percent believe that Croatian GDP will range between -0.5 to +0.5 percent
• 15 percent believe that Croatian GDP will range between +0.5 and +1.5 percent
• 10 percent believe that Croatian GDP will fall between -0.5 and -3 percent
Sixty percent (vs 70 percent in January) of respondents believe that the Croatian stock market is undervalued, 35 percent believe it is fairly valued (vs 30 percent), while 5 percent believe it is overvalued (vs 0 percent).
Regarding expectations for different asset classes, respondents expressed a slightly lower degree of optimism (bullish sentiment). Bullish sentiment prevails for stocks, although lower than in January: Croatian stocks 75 percent vs 85 percent in January, emerging market stocks 70 percent vs 95 percent, and developed market stocks 55 percent vs 60 percent. A noticeable decline in optimism is also evident for bonds, with 80 percent (vs 55 percent in January) bearish on Croatian kuna government bonds, while 75 percent of respondents are bearish regarding those with currency clauses (compared to the previous 60 percent). Seventy-five percent of respondents expressed bearish sentiment regarding eurobonds (vs 60 percent), which could be explained by the reduction of Croatia’s credit rating by Moody’s, the rise in yields on Italian government bonds (due to election results and further implementation of structural reforms in Italy), and historically very low yields or high prices that leave little room for further growth. Regarding corporate bonds, 95 percent of respondents are bearish, which is likely, among other things, a result of non-fulfillment of matured obligations on coupon maturities by some Croatian companies.
In the short-term debt and money market, investors have changed their stance towards cash, with 65 percent of respondents now bullish (in January, 75 percent of respondents were bearish), while respondents remain bearish on treasury bills, but slightly less than a month before (55 percent vs 70 percent). The pessimism regarding the bond market and the treasury bill market indicates that investors intend to keep a significant portion of their portfolios in cash, and therefore (along with huge liquidity in the interbank market) expect further rate reductions. On the other hand, the optimism in the money market, alongside the simultaneous pessimism in the treasury bill market, is somewhat surprising. It could be concluded that survey participants believe that the liquidity of the monetary system will remain very high, but confidence in short-term government debt instruments is gradually decreasing, which can be explained by the large amounts of treasury bills maturing in March and the possible new issuance of treasury bills.
On all German and American government bonds (maturities of 1, 5, 10 up to 30 years), except for the thirty-year American bonds, bearish sentiment continues to prevail in the next three months, but at slightly lower levels than in January (between 55 percent and 68 percent of respondents are bearish, depending on the bond’s maturity). On American bonds with maturities up to 30 years, respondents expressed bearish sentiment (68 percent of respondents), unlike in January when they were predominantly bullish (58 percent bullish). Yields on German and American government bonds are at historically low yields, and with the rise of the stock market, there are increasing fears that in the event of further recovery, the Fed will stop its policy of purchasing government bonds (quantitative easing) and thus open the way for future growth in long-term yields. Furthermore, it is not entirely clear how the Fed will withdraw liquidity and keep inflation under control. This uncertainty is particularly evident in the significant change in sentiment regarding the longest (thirty-year) government bonds.
Expectations regarding commodities have again, unlike the sentiment in January, leveled out, with 50 percent of respondents expecting further growth in gold (vs 40 percent in January). Fifty-three percent of respondents are bullish regarding oil in the next three months, which represents a decline compared to the previous month (70 percent). The rise in optimism regarding gold could also be a result of slightly greater fears of inflation in the long term, while on the other hand, respondents are likely uncertain about a faster recovery of economies and therefore do not prefer oil as a particularly attractive investment class.
Unlike in January, respondents’ expectations regarding stock market indices are no longer unequivocally bullish. In fact, respondents are bullish only on CROBEX – 70 percent of them (vs 85 percent in January) expect further growth of CROBEX. Fifty-five percent of respondents are bearish (vs 65 percent bullish) regarding DAX, while 60 percent (vs 60 percent bullish in January) are bearish regarding further movements of the S&P500 index.
Regarding the price movements of the components of the Zagreb Stock Exchange CROBEX index for the next month, there is also a visible increase in further bullish sentiment: for 16 (the same as in January) stock issues, bullish sentiment prevails, while for 6 (vs 10 in January) bearish sentiment prevails, while for 3 stocks, sentiments are equally represented (50 percent/50 percent).
Stocks that respondents are most bullish on are Končar EI d.d., Adris d.d. (preferred), Ericsson Nikola Tesla d.d., Riviera Adria d.d., Podravka d.d., and Belje d.d.
Stocks with the highest bearish sentiment are Ingra d.d., Dalekovod d.d., INA d.d., and Kraš d.d.
When we look at respondents’ expectations for individual sectors for the next three months, noticeable changes compared to the previous month are evident:
Bullish sentiment is present in fewer sectors than a month ago – three sectors (technology, healthcare, and energy sector), while for two sectors, sentiments are divided 50 percent-50 percent (non-cyclical consumer sector and utilities sector).
For the remaining sectors (four sectors), respondents are predominantly bearish, ranging from 53 percent to 68 percent.
The shift in sentiment is most evident in the financial services sector, the industrial sector, and the cyclical consumer sector.
Expectations regarding the movement of the kuna exchange rate against the euro in the next three months show that there have been changes compared to January: 45 percent of respondents expect the exchange rate to move in the range of 7.5-7.55 (vs 60 percent in January), 50 percent see it at levels above 7.55 (vs 35 percent in January), while 5 percent of respondents believe the exchange rate will be below 7.50 (the same as in January). Given the expectation of very low kuna rates in the kuna money market, it is not surprising that investors are increasingly less convinced of a faster seasonal appreciation of the kuna. High kuna liquidity definitely does not favor such an expectation. This perception would likely change in the event of a foreign exchange intervention by the HNB that would withdraw part of the kuna liquidity.
Expectations regarding the movement of the euro exchange rate against the dollar in the next three months do not show that respondents have significantly changed their view: the majority of respondents, 79 percent (vs 89 percent) expect the exchange rate to move in the range of 1.30-1.35. Five percent of respondents see the exchange rate at levels of 1.30, and 16 percent from 1.35-1.40.
Expectations regarding the movement of the euro exchange rate against the Swiss franc in the next three months show that the majority of respondents, 55 percent (vs 30 percent) expect the exchange rate to move in the range of 1.20-1.22. Thirty percent (vs 50 percent) see the exchange rate at levels of 1.22-1.25, and 5 percent of respondents see it at levels above 1.25 (vs 20 percent in January), while 10 percent of respondents see it below 1.20.
