Black clouds and silver linings for the Zagreb Stock Exchange

By bne IntelliNews April 17, 2014

Guy Norton in Zagreb -


The inhabitants of Zagreb are currently enjoying the balmy weather conditions in the Croatian capital and have been packing out the terraces of the city‘s myriad cafes and bars to celebrate the onset of spring. But for followers of the Croatian equities scene the prognosis remains distinctly chilly and cloudy.

As of April 16, the Crobex official share index of the Zagreb Stock Exchange (ZSE) was languishing at an 18-month low of 1,740 points, down around 3% in the year to date. It’s all in stark contrast to the heady days of 2006-2007, when share offerings from the likes of oil and gas firm INA Group and Hrvatski Telekom were front page news, attracting the eager participation of hundred of thousands of Croatian citizens. At one point the newfound enthusiasm of Croatian equity investors helped to propel the Crobex index to a record high of 5,400 in October 2007.

But with the onset of the credit crunch and associated global economic slowdown in 2008-2009, confidence in the Croatian economy and the financial fortunes of its corporates collapsed. As a result, the budding equity investment culture in Croatia withered on the vine, with droves of retail investors dumping their stocks, causing the Crobex index to plunge to 1,300 by March 2009. Although at one point it staged a recovery to 2,200 in June 2011, the fact that Croatia’s GDP has shrunk by 12% since 2009 has further dampened investor sentiment, with the result that in the last couple of years the Crobex has been stuck in a trading range of 1,700-1,800.

What’s more, trading volumes on the bourse have shrunk in line with the Crobex index. In the first quarter of this year, average daily turnover was just HRK17.7m. Although that’s a welcome 40% or so up on the HRK12.5m figure for the first quarter of 2013, it’s a tiny fraction of the HRK270m average daily turnover recorded in the heady days of 2007.

That dramatic shrinkage in trading activity has proved to be a death knell for a number of local brokers that have already gone to the wall, while staffing levels at those that have survived the downturn have been slashed.

And it’s not just investors that have lost interest in the ZSE – a large number of companies have delisted from the bourse since the introduction of a new capital markets law in 2009, which removed the requirement that all major companies be listed on the exchange. In the last five years over 120 companies have exited the ZSE, with more delistings in the pipeline.

Although many of the companies that have exited the equities stage in Croatia were relative minor players whose shares were often rarely traded, the ZSE has lost some notable stock market favourites as well, including the country’s leading retailer Konzum and Croatia’s biggest pharmaceutical firm Pliva.

In a rare reversal of that unfavourable trend food company Franck recently revoked its decision to delist from the ZSE. But for the moment at least, there’s little or no prospect of any new issue activity – there been no IPOs of any note on the ZSE since 2007 – although drug producer JGL, which has doubled its financial turnover in the last five years to become the country’s second largest pharmaceutical firm, has mooted the possibility that it might list on the ZSE in 2015, favourable market conditions permitting.  

Fortune favours the brave

Although the recent performance of the Croatian stock market leaves much to be desired, a recent report by InterCapital, the leading independent brokerage house in Croatia, has offered some much-needed light relief to the doom and gloom that has gripped the country’s equity scene in the last few years.

The report shows that fortune has generally favoured the brave when it came to investing in Croatian equities at the height of the global economic crisis. According to research by InterCapital analysts, investors will have reaped handsome rewards if they decided to take the plunge and plough their hard-earned into stocks in March 2009, when concerns about the health of the global economy were at their height.

For example, shares in tourist company Valamar Adria Holding have returned a striking 671% in the last five years, while engineering firm Koncar (+262%), oil and gas outfit Ina (+240%), and auto components supplier AD Plastik (+234%) have also performed impressively. Investors have also seen solid returns on shares from food companies Atlantic Grupa (+128%) and Podravka (+48%), electronics firm Ericsson Nikola Tesla (+80%) and tobacco-tourism conglomerate Adris (+87%). Ironically, one-time stock market darling Hrvatski Telekom has massively underperformed since 2009, with the company’s shares down 20% over the last five years.

In terms of overall market performance, Croatia has also registered a positive outcome since March 2009, with the Crobex-10 index of leading shares on the ZSE, up 37% over a five-year period. In terms of regional comparisons, the Zagreb bourse easily outperformed its counterpart in next-door Slovenia, where the SBI Top-8 index of Slovenian shares has fallen by 14%, but was slightly outperformed by Belgrade where the Belex-15 index of Serbian blue-chip equities has increased by 48% over the last five years.

In global emerging market terms, however, Croatian shares have underperformed their peer group equivalents, with the MSCI Frontier Markets Index up 69% and the MSCI Emerging Markets Index up 95% since March 2009. Emerging market equities in general have proved to be comparative laggards when it comes to developed market stocks, with the S&P 500 index of leading shares in the US, up 174% since March 2009. 

According to InterCapital’s head of research, Tomislav Bajic, the overall findings of the firm’s research report shows that even in tough times “we still have some decent companies here in Croatia”. But he cautions that it will require real improvements on the macroeconomic front in Croatia for there to be a significant recovery in stock market sentiment and performance in the coming years.

So whether Croatian equities can play catch-up with those in the US remains open to question, but as the InterCapital report illustrates every cloud can have a silver lining. 


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