Nicholas Watson in Prague -
While global equity markets around the world were tanking during the week of August 3 as more bad news emerged from the sub-prime lending mess in the US, the stock markets in several Southeast European countries were posting record highs.
Though some of the Southeast European markets came off their highs toward the end of the week as fears of a global credit crunch finally took their toll, it's noticeable how these markets appeared largely inured to what was happening around them.
Slovene Stock Index
Slovenia was the standout market, posting record highs for six days running until Friday, August 10 when the Ljubljana Stock Exchange's (LJSE) indices ended marginally lower. The broader 15-share SBI20 index ended down 0.48%, though analysts say that minor fall could as well be attributed to the market taking a rest after recording six days of record highs and thinner trading on a mid-summer Friday as to what was happening in the rest of the world. Asian and European stock markets fell heavily on Friday until the European Central Bank and Federal Reserve began to pump billions of dollars into the system, which had a calming effect on Wall Street.
The Slovenian stock market is up almost 80% from the start of the year, benefiting from a surge in foreign money from the country's adoption of the euro at the beginning of the year, a GDP growth rate of 7.2% in the first quarter, and the stellar performance of certain companies such as the drugmaker shares Krka, which reported a 31% rise in its half-year net profits.
However, with the recent rally making Slovenia's equity market more expensive than China's, some are arguing it could be time to sell. According to Bloomberg, companies in the SBI20 index trade at an average of 38.9 times estimated earnings, more than twice as much as their average for the past year. The price-earnings ratio is also more than double that of the Morgan Stanley Capital International Emerging Markets Index.
Even so, there are some potential positives on the horizon. One of those is that Slovenia will launch a tender for the sale of 49.13% of state-controlled telecom operator Telekom on August 24. The government will give a potential buyer an option to buy the entire stake in Telekom, which has a market capitalisation of 3.3bn, in one go. According to local reports, Spain's Telefonica, Russia's Sistema, Deutsche Telekom and Iceland's Simmin are all interested in buying the stake.
Elsewhere in the region, Bulgaria's stock market recorded two straight days of record highs on August 7 and 8, before falling toward the end of the week. The BG 40 index, which tracks the most traded stocks on the Bulgarian Stock Exchange (BSE), added 1.0% to a record 410.47 points. Big gainers included financial stocks, after Belgium banking group KBC completed the acquisition of a 70% stake in the Bulgarian financial group DZI. And on Monday, August 13, the CEO of KBC told Money.bg that his group is looking for new acquisitions in Bulgaria and has 2bn to play with.
"Looking back at other downturns in global markets from the last year, the pattern is that we don't react as seriously as other exchanges," says Nadia Petrova, an analyst at ELANA Fund Management in Sofia.
Bulgaria's blue-chip SOFIX index has gained more than 30% since the beginning of the year as investors plough money into this new EU member state (it joined along with Romania in January) and Bulgarian firms learn the benefits of IPOs to take their companies forward. BSE chairman Victor Papazov told bne that the IPO headcount should reach around 10 by the end of this year.
ELANA's Petrova and other analysts are positive on the outlook for the rest of the year. "Yes, we may see a correction as we have hit a record high; nothing goes up forever so we'll see a bit of a correction. But overall I'm positive for the rest of the year," Petrova says.
Meanwhile, investors in Macedonian stocks were keeping their heads when all about them were losing theirs. On Friday, August 10 the blue-chip index of the Macedonian Stock Exchange (MSE) hit a fresh all-time high of 8,323.2 points. And it wasn't in relatively thin trade either; turnover nearly doubled in the week to 9.02m.
While analysts are generally optimistic about Southeast Europe for the rest of the year, the resilience of the markets there will be sorely tested over the coming weeks. What's worrying many banks around the world is that even worse problems than the sub-prime lending are lurking, especially in the asset-backed securities markets where many are heavily invested.
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