SEE region's top 100 listed companies boost capitalisation in 2013
The market capitalisation of the entrants in the 2013 edition of the SEE TOP 100 listed companies ranking totaled 44.7 billion euro, compared to 39 billion euro for the firms that made the 2012 list. Most entrants in the ranking – 65, saw their market capitalisation rise, with 30 posting a decline. In 2013, the main blue-chip stock indices of the bourses in Southeast Europe (SEE) mostly built on the rally that had started in 2012 with all of them closing out the year in green. The runaway pace-setter was the BET, the bluechip index of the Bucharest bourse, BVB, with the rest of its regional peers posting more modest gains.
On the market capitalisation side, the Bucharest bourse was again the front-runner in terms of growth in 2013 with the region's other two big hubs – Zagreb and Ljubljana, posting a mixed picture on the backdrop of balance sheet woes in the banking sector and subpar showing by one-time star performers.
The market capitalisation of the region's top 100 listed companies rose to 44.7 billion euro in 2013 from 39 billion euro a year earlier. Most entrants in the ranking – 65, saw their market capitalisation rise with 30 posting a decline compared to 2012.
All four of the Zagreb bourse's top 10 placers experienced double digit drops in their market capitalisation as competition in their respective sectors intensified while the recession continued to hurt banking sector portfolios.
The Bucharest bourse matches its counterpart in Zagreb in terms of top 10 entries, but the Romanian companies are clustered much closer to the top as well as claiming the no.1 spot itself courtesy of OMV Petrom.
Although the second largest in the region in terms of total market capitalisation behind the hub in Bucharest, the Zagreb bourse boasts the largest presence in the top 100 ranking, accounting for a third of the entries. The BVB is represented by 18 companies in the ranking.
The 2013 edition of the top 100 ranking was somewhat more stable, featuring 14 newcomers versus 20 in the 2012 edition.
BULGARIA Georgi Georgiev, portfolio manager, Karoll Capital Management:
The last couple of years have definitely seen interesting developments on the Bulgarian Stock Exchange (BSE). The negative trend that started at the end of 2007 eventually played itself out and after the market formed a significant bottom during the summer of 2012, it entered a new positive cycle.
Although during the first half of 2013 the focus in Bulgaria was mainly on tensions building up on the local political scene that did not dampen the momentum of the stock market rally. After a minor consolidation it was back to full strength and in the autumn accelerated its pace, helping the SOFIX push beyond the important technical level of 515 points. As a result, the Bulgarian stock market was recognised as the region's top performer in 2013 while also placing among the front-runners worldwide with a growth of 42.28%. The traded volumes also increased considerably along with foreign interest in Bulgarian equities compared to the situation in the previous five years.
Just as Bulgaria nearly lost its billing as one of the most stable countries in the region considering the political situation in the beginning of 2013, for a period of 3-4 months in the summer of 2014, the myth that its banking system was extremely stable was also debunked. That reflected negatively on investor sentiment and after the solid start to the year – the SOFIX had gained 26.5% in the preceding three months, it collapsed and lost a big chunk of its gains.
As it currently stands, the situation on the stock market does not support expectations for a decisive move either up or down until the end of 2014. The market has already absorbed a major portion of the bad news, including the implications from recent events on the political scene and in the banking sector. Still, it would be unrealistic to expect that investor confidence would recover fully very soon. The most probable scenario for the moment is a consolidation at the current levels until the end of the year and a likely resumption of the strong uptrend in 2015. An important support level for the SOFIX is the range around 460 points - a drop to this mark would still leave the gains from the current rally intact.
A positive signal for the market could be the long awaited sale of the operator of the Sofia stock exchange. However, what is most important for the moment is the political and macroeconomic stability of the country. Both of those are crucial factors for shaping sentiment among local and foreign investors. The lowering of deposit rates could also give the stock market a boost as investors could be more willing to take risks in order to receive higher yields for their money.
CROATIA Anto Augustinovic,senior equity analyst, Erste&Steiermaerkische Bank:
The beginning of 2013 on the Croatian equity market seemed very promising. Positive sentiment generated by Croatia's upcoming accession to the European Union drove equity bench-
marks higher and increased market liquidity. During a three-month rally from its lows in December 2012 until mid-March 2013, the benchmark CROBEX stock index surged around 20% to reach 2 000 points, a jump which was accompanied by significantly higher trading volumes. However, that optimism started to wane after corporate results in the first quarter of 2013 reminded the market that the Croatian economy was still not doing very well.
Indeed, prolonged weakness in the macroeconomic environment has been the biggest burden for equity market development for several years, and perhaps the main reason why Croatian equities missed the global rally that we have been seeing since the bottom that was hit in 2009. That was again the case in the latter part of 2013, when equity benchmarks erased most of their initial gains, pressured by deteriorating fundamentals in the economy and corporate earnings. The CROBEX ended the year with a 3.1% gain, while total turnover slightly declined compared to a year earlier.
Still, the performance of the various sectors traded on the bourse was not that homogeneous with several of them pacing the rest. This primarily refers to tourism companies, which were the undisputed winners in 2013, with the sector benchmark CROBEXturist surging 40%. Tourism was only one of a few parts of the Croatian economy that performed well, a fact which was reflected in the market prices of hotel operators, being additionally elevated by consolidation and M&A activity in the sector.
A completely different story played out for those companies and sectors mainly reliant on domestic demand, such as telecom service providers, non-exporting companies, or almost the entire construction sector. Weakening fundamentals drove many companies to pre-bankruptcy settlements, which included substantial balance sheet restructuring, write-offs, debt-for-equity swaps, and hence very volatile stock prices.
Mergers and acquisitions have been, and remained, one of the biggest market drivers, which brought additional activity and dynamics on the market. The story continues, with expected further consolidation and takeovers in the tourism sector and intensified privatisation efforts by the Croatian government, which now cover majority stakes in already listed companies, but also very valuable minority stakes in blue-chip companies such as Koncar Elektroindustrija or Hrvatski Telekom.
ROMANIA Catalin Diaconu, Iuliana-Simona Mocanu, Alexandru Combei, analysts, Raiffeisen Research:
After Romania posted a GDP growth of 3.5% in 2013, Raiffeisen Research expects a similar performance in 2014, driven by the resur- gence of private consumption. This has triggered positive sentiment towards Romania and - coupled with low inflation - has been reflected in historically low levels of yields for leu-denominated Treasury securities.
The local equity market continued to rise during the first seven months of 2014. The main local share index, the BET, has gone up by 6.0% year to date after an impressive 26% return in 2013, excluding dividends. The average daily liquidity for the first half of 2014 - excluding special transactions such as private placements and public offerings - climbed to 8.5 million euro compared to 7.3 million euro of average daily liquidity in 2013. For the rest of 2014 we do not see much activity on the primary market from stateowned companies as the much awaited Hidroelectrica IPO was postponed after the company reentered insolvency. But we expect to see other placements from closedend investment fund Fondul Proprietatea and next year we could see new SPOs as the state apparently intends to float additional stakes of listed state-owned companies.
The positive trend in 2014 could be partially explained with the higher weight awarded to Romania in the MSCI Frontier Markets indices. Romania's weight in MSCI FM 100 index could go up to 3.4% by end-November 2014 - based on MSCI estimates - from 2.3% presently. Since funds managing around $14.5 billion use frontier market indices as benchmark, we expect a positive impact on both liquidity and prices. Looking further ahead, we believe that there are real chances that MSCI could put Romania on the monitoring list to become an “emerging market” as soon as next year. This could lead to an overall rerating of the Romanian stock market.
Mladen Dodig, head of research, Erste Bank Serbia:
Global equity indices recorded an excellent performance in 2013. Thanks to the expansionary monetary policies of central banks and declining government bond yields, developed equity markets became attractive investment destinations. At the same time, the performance dynamics of emerging and frontier markets were weaker, a fact which can be attributed to certain specific characteristics of less developed markets.
In the case of the Belgrade Stock Exchange, a
lack of ‘blue chips' and low liquidity in equity trading are the main reasons why large institutional investors are still avoiding exposure to this interesting market. Despite the challenging macroeconomic environment, we expect that this will change, as Serbia is intensifying reforms and heading towards EU membership. The political arena is now characterised by a significant degree of stability. The domestic currency is stable, while interest rates fell in the last two years. The corporate governance situation, the transparency of listed companies and the general reporting requirements have substantially improved with the adoption of new regulations.
But low trading volumes remain the main obstacle for major players from the asset management industry. This could be instantly improved by the listing of those state-owned companies in which Serbian citizens already own shares through the government's free share distribution program.
It would be very difficult for any of these listings to occur in 2014, as the macro outlook became more blurry after both growth and fiscal prospects deteriorated recently. We have revised our 2014 growth forecast to minus 0.5% from 1.0%, after disastrous floods in May took a strong bite out of agricultural and energy production. Also, more reserved tones from the authorities indicate a milder consolidation and reform agenda than had been hoped for. However, the strategy for the capital market development is quite clear – bigger companies on the bourse, more reporting and transparency, more visibility of the market – and will be rewarded by investors.
Saso Stanovnik, head of research, Alta Invest:
At first glance, the Slovenian stock market had a relatively weak year in 2013. Namely, the main stock index, the SBI TOP, delivered only 3.2% growth in 2013 and was still roughly 20% down from the March 2009 levels when developed markets bottomed out. However a detailed view shows a big discrepancy between returns from companies on the government's privatisation list and companies still struggling with excessive financial gearing.
Namely, the stock price of airport operator Aerodrom Ljubljana surged by an astonishing 130% in 2013, the price of incumbent telecommunications company Telekom Slovenije jumped 27% and the stock prices of food producer Zito and titanium dioxide producer Cinkarna Celje increased by 14% each. All of them found themselves on the privatisation list in May 2013.
On the other hand, food retailer Mercator experienced a 28% decrease in its stock price in 2013 while brewer Lasko was down 43% despite holding on to a dominant domestic market share. The most liquid share was as always generic pharmaceutical company Krka with 20% stock price increase for the year. Therefore we can say that stock market returns in 2013 were mostly dictated by a privatisation process, however valuations also played a role. Namely, as 2013 started on a depressed investor sentiment level and excessive non-adjusted aggregate valuation, several companies with sound balance sheets and operations had a price to earnings ratio of below 10. This in most cases started to positively adjust during 2013 as investors searched for value.
On aggregate level, earnings stagnated in 2013 versus 2012, burdened by adverse domestic and regional economic environment and impairments tied to bad investments. We should note that the long-awaited recapitalization of the local banks happened only towards the end of 2013, therefore the situation in the sector did not get a chance to begin to stabilize that year. However, we should also note dividend payout ratios mostly increased as not only the state but also private investors often demanded higher dividends than managements proposed. Again, the stock market witnessed a stark contrast between companies not being able to pay out even symbolic dividends as balance sheets were overstretched by debt and companies that had a sound balance sheet and stable cash flows and consequently paid dividend yields north of 5.0%.
In 2014, the main theme will remain the privatisation drive, namely whether the ongoing sell-off procedures would end successfully and if new names will be picked for government divestments. However, the political turmoil in the spring of 2014 that ended with a completely new party securing most parliament seats in a snap vote added to the complexity of making capital market and privatisation forecasts. Earnings should start to grow albeit at low pace while investors will need to put ever more efforts into stock picking to find value amid privatization speculations on a shallow market. All in all, high returns are still plausible due to this but, on the other hand, risks are building up.