Southeast Europe stocks seen shining if ECB starts printing money

Telekom Slovenije, D.d

30/09/2014 12:27

* S.E. European bourses outperform, have better prospects 
    * IPOs help propel Bucharest bourse 
    * Bottleneck is relatively low market liquidity 
 
    By Sandor Peto and Marja Novak 
    BUDAPEST/LJUBLJANA, Sept 30 (Reuters) - Stocks in Romania 
and other parts of southeastern Europe have outperformed Central 
European peers this year and stand to benefit most from a fresh 
inflow of capital if the European Central Bank starts to flood 
markets with cheap money. 
    Three years ago Eastern European stocks were the surprise 
winners of a similar cash injection from the ECB. Then the 
region's main bourses -- Warsaw, Budapest and Prague -- were 
investors' favourites.  
    Since then, however, the market capitalisation of the 
region's biggest new star, Bucharest, has exceeded Budapest, and 
Zagreb also got near. This growth has been fueled by listings of 
state-owned companies and favourable changes in regulation.  
    Slovenia, emerging from a bank crisis and political turmoil, 
has strongly outperformed this year, with its blue-chip SBITOP 
index  .SBITOP  gaining about 30 percent. Serbia  .BELEX15  rose 
19 percent, Bucharest  .BETI  11 percent and Zagreb 9 percent. 
    Looking more to the north, the indices of the region's 
well-established stock exchanges have lagged behind this year 
and are expected to continue to do so. Budapest .BUX  fell by 3 
percent. 
    "New frontier funds have put the Balkan region on the map 
and the interest in the Balkans is rising amid lack of other 
investment opportunities," said Saso Stanovnik, chief economist 
of the Ljubljana-based investment firm Alta Invest. 
     <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
     Graphic on main CEE indices: http://link.reuters.com/jan92w 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
     
    WHY NOT THE BIGGIES? 
    The region's better-known bourses -- Budapest, Prague and 
Warsaw -- are unlikely to be the regional winners this time, 
even though some of their companies could benefit from a 
regional bull run prompted by the ECB's measures. 
    Stock market flotations on these bourses have fallen. A 
slowing economic recovery has made Polish markets price in cuts 
of 100 basis points over the next 5-6 months in the central 
bank's already record-low 2.5 percent main interest rate. 
    That could further squeeze banks' margins, weighing on bank 
stocks which account for nearly 40 percent of the blue chip 
WIG20 index  .WIG20 . Warsaw is by far the region's biggest 
stock exchange with market capitalisation of about $280 billion. 
    Poland's pension reform has curbed local pension funds' 
ability to invest in stocks.  ID:nL6N0Q72XK   ID:nL6N0RQ4LS  
    In Hungary, heavy taxes on some sectors, including banks, 
and legislation to help borrowers at the cost of banks weigh on 
stocks including OTP OTPB.BU , or Prague-listed Erste  ERST.VI . 
    Despite the hardship, earnings expectations for the next 12 
months are still well above the past 10 years' average in Warsaw 
and above average in Budapest according to Reuters data. 
Prague's index  .PX  could stay flat in the next 12 months, 
Komercni banka analysts said in a note.      
     
    BUCHAREST, LJUBLJANA SHINE 
    In Bucharest, initial public offerings of three major 
state-owned firms in the last year have helped the bourse to 
become the region's third biggest market after Warsaw and 
Prague. 
    Further listings are in the pipeline. Daily turnover of 
around 13 million euros is 40 percent higher than last year, but 
is still low, making it easy to move prices with small volumes. 
    Ludwik Sobolewski, the chief executive of the Bucharest 
exchange, said lowered trading fees and regulation changes could 
help put the bourse on MSCI's watchlist for countries to be 
upgraded from frontier to emerging markets.  ID:nL6N0RP29R ] 
    The risk is that prices will swell into a bubble. 
    "At this moment, I would be even concerned if this rise of 
indexes is too fast. It can be also this sort of superficial 
euphoria," Sobolewski told Reuters.  ID:nL6N0RP29R ] 
    Slovenia's bourse is much smaller but has gained more. 
    "A liquidity rotation is occurring across frontier markets. 
Countries with attractive valuations and stable policies have 
particularly benefited this year, Slovenia being one of them," 
said Asha Mehta of U.S.-based Acadian Asset Management. 
    Slovenia has so far sold three of the 15 firms slated for 
privatisation last year. Its main airport Aerodrom Ljubljana 
 ARPO.LJ  was sold at a price 124 percent above its trading 
price early in 2014. Shares of Telekom Slovenia  TLSG.LJ , the 
largest firm to be sold, gained some 20 percent this year.  
    Croatia has been in recession for six years but the bad 
years forced many companies there to restructure operations. It 
plans to sell further shares in firms including electrical 
concern Koncar, telecoms T-HT and the Ploce port. 
    Legal changes have from this year allowed local pension 
funds, which control assets worth some 65 billion kuna (10.82 
billion US dollar), to invest more in equities -- just the 
opposite of what happened in Poland and Hungary. 
    Meaningful capital inflows into Serbian stocks are possible 
only if the government launches a much-awaited programme to sell 
off and possibly list state-owned firms. The bourse's index 
 .BELEX15  has a low capitalisation of only $3 billion. 
    "Shares on BELEX are generally undervalued as this market is 
perceived as a risky one," one Belgrade-based trader said. 
"Serbia's bourse is in the state of 'awakening'," he added.     
 
 (Additional reporting by Ivana Sekularac and Aleksandar Vasovic 
in Belgrade/Marc Jones in London/Luiza Ilie in Bucharest/Marcin 
Goclowski and Jakub Iglewski in Warsaw/Jason Hovet in 
Prague/Igor Ilic and Zoran Radosavljevic in Zagreb; Editing by 
Gareth Jones) 
 ((Marja.Novak@thomsonreuters.com; +386-8-205-6369; Reuters 
Messaging: marja.novak.thomsonreuters.com@reuters.net)) 
 
Keywords: BALKAN BOURSE/