Many stocks and global stock indices plunged into the so-called bear territory in June, losing more than 20 percent of their value since the beginning of the year, while the Zagreb and Ljubljana stock exchanges, at least for now, defy global trends. Namely, the domestic index CROBEX has lost only 3.5 percent in value this year, while the Slovenian index is down 10.5 percent in the same period. On the other hand, EURONEXT 100 and DAX are recording double-digit corrections when looking at the half-year period, and a similar situation is observed with American indices.
Why are stocks in the region performing better than global ones? Is the explanation found in the low liquidity of regional exchanges, or will the negative wave eventually spill over to these markets?
– The year started solidly on the Zagreb Stock Exchange, with February bringing intensified trading, during which market capitalization suffered losses of about two percent regarding stocks. The indices recovered after the initial shock. The rest of the year is passing in mostly positive atmosphere. Compared to the situation on American and European markets, we can say that ours is doing quite well. This will certainly be another dynamic and uncertain year, the outcome of which is difficult to predict at this moment – emphasizes Ivana Gažić, CEO of the Zagreb Stock Exchange.
The slight decline on the exchanges in the region should, among other things, be sought in the fact that they did not experience the explosive growth in 2021 that was recorded on numerous global exchanges.
– We must be honest and say that the mentioned indices, especially in the USA, have had significantly better performance in recent years compared to CROBEX. Also, it is an undeniable fact that activities on the ZSE and LJSE are very modest, with an average daily turnover of about two million euros on both exchanges. I estimate that the main reasons for the ‘solid performance’ of regional indices are that most listed companies have little or no exposure to the markets of Russia and the CIS, are low-leveraged, and are relatively undervalued compared to Western companies – believes Danijel Delač, a member of the Management Board of Intercapital.
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Marko Stašić, a member of the Management Board of Agram broker, cites significant growth of developed market indices in the past year compared to the indices of the Zagreb and Ljubljana stock exchanges, significantly greater liquidity on other exchanges, as well as greater availability of various types of financial instruments that can cause larger price movements on the exchanges as the most important factors for the smaller decline of regional exchanges.
Nijedna euforija ne traje dugo
Low liquidity is a standard ailment of the Zagreb Stock Exchange, and the Ljubljana Stock Exchange suffers from the same issue, which, although it has somewhat higher total turnovers, is concentrated on a small number of stocks and through a smaller number of transactions. Last year, there were about 91.6 thousand transactions on the ZSE, with a turnover of about 337.5 million euros, while the Slovenian exchange had a turnover of about 380 million euros in 2021 (achieved in 32.7 thousand transactions).
– Liquidity on both exchanges is comparable and at similar levels, but in Slovenia, it is concentrated in five or six issues, while on the ZSE, it is spread over a significantly wider number of issues – notes Delač.
His words are confirmed by the fact that the top 10 stocks on the Zagreb Stock Exchange account for about 50 percent of the total turnover, while on the LJSE, it is more than 80 percent. One of the reasons for this lies in the number of financial instruments and stocks on these exchanges: the ZSE has a total of 133 financial instruments (of which 97 are stocks), while the LJSE has a total of 74 (of which 24 are stocks).
Although the ZSE leads in the total number of transactions, Delač notes that the participation of small (individual) or medium-sized (most often legal entities) investors on the LJSE is greater than on the ZSE. He explained that part of the reason for this lies in the very attractive so-called dividend yield on the LJSE, which is higher than on the ZSE, attracting investors who invest for the long term. Additionally, Slovenian investors, due to the economic situation, have somewhat higher disposable income for investing/saving and somewhat greater risk tolerance associated with investing in stocks.
Activity on the Zagreb Stock Exchange before the economic crisis of 2008 was at much higher levels than today, and although the number of investors has recently increased, it is far from those pre-crisis times.
– In recent years, we can say that there has been a noticeable increase in interest and a return of small investors to the Zagreb Stock Exchange, but not as before the 2008 crisis. We believe that the return of investors would be even more significant if some of them had not turned to other investment classes, namely foreign securities, real estate, and the bolder ones even to cryptocurrencies – explains Stošić.
Until 2008, it was very complicated to invest in foreign exchanges, so most of the focus of domestic investors was on the ZSE, and today it is significantly easier, so a good portion of domestic investors now invests outside the borders of Croatia.
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