Overview
Economy Fears Chase Bulgarian Stocks
Investors on the Bulgarian Stock exchange saw another week, marked by steep losses in thin volumes. Shares started Monday’s session with some tiny gains but moods quickly changed and all of the four local indices dived deeply into the red by the end of the week. Thursday brought the severest losses, with SOFIX plunging 7.39% and BG40 tumbling 9.11% in its biggest ever one-day slump since the index was launched in 2005. SOFIX lost another 15.77 points on Friday to dip under 400, expanding a six-day losing streak in which it sank by more than 16%. For the week, it fell by 16.32 % to finish at 391.47, hitting a 62-months low. The wider BG40 and BGTR30 also took their share of the breakdown and tumbled by 17.76% and 14.93% respectively, within the week. Global demand for liquidity did not bypass the real estate investment trusts and the index tracking their performance, BGREIT, lost 1.87% within the week.
Despite heavy sellingduring the last couple of weeks pushing share prices to very attractive levels, with an average P/E of SOFIX of nearly 5.2, the outlook for the Bulgarian stock market remained clouded by concerns about a worsening economic health and increasing business risk. During the week some of the local companies announced intentions to cut staff and to halt production, making it clear that the credit crunch and shrinking global consumption had already affected the real sector in Bulgaria (see Corporate news section on page 2).
Earlier during the week Fitch Ratings downgraded Bulgaria's long term foreign and local currency ratings on concerns over increasing risk of a recession. Additionally, Fitch said that a marked decline in external financing flows would necessitate a sharp contraction in domestic demand to rein in the current account deficit totaling 5.6% of GDP according to the Q3 flash estimate of the National Statistical Institute. The agency emphasized that Emerging Europe was the most vulnerable Emerging market region to the deterioration in the global financial and economic environment owing to the presence of large current account deficits and relatively high levels of short-term external debt. Along with Bulgaria, Fitch had also downgraded the sovereign ratings of Kazakhstan, Hungary and Romania and lowered the outlooks of Russia, Malaysia, South Korea, Mexico and South Africa, pointing out that the profound shift in the global economic and financial outlook had posed significant real economy and policy challenges for emerging markets.
Trends
SOFIX (chart, table)
BG 40 (chart, table)
Top Gainers / Top Losers (table)
Main Economic Indicators (table)
East European Markets (table)
news of the Week
Corporate Sector
- Neochim AD [3NB] will resume production following a shutdown for annual maintenance in August later than initially planned due to the global financial crisis, the company said on Thursday. Neochim previously planned to resume production in November. "The repairs took longer [than expected]. The deadlines were approximate," the company's investor relations director Alexander Ganev told SeeNews. He declined to comment on local media reports that the company would halt production because the global finacial crisis has adversely affected its key markets.
- Cast iron producer Chugunoleene [59C] will lay off 25% of its staff due to a sharp decrease in exports caused by the global financial turmoil, the company announced on Thursday. Chugunoleene exports 85% of its production and a drop in orders from its key markets like Italy, Germany and France has put it in “an extraordinary situation”, the company said.
- Unfavorable market conditions will probably push the biggest Bulgarian fertilizer producer Agropolychim, controlled by the U.S. Acid & Fertilizers, to suspend operations for several months as of November 21 because of a fall in exports, which contributes to 60% of company’s sales, the management said. Production may be resumed in February 2009 if the local market revives but the company could be forced to significantly reduce its 1,100–strong workforce if the halt continues for too long, it was added.
- Half of the hotels in Albena [6AB] will remain closed next season in the worst-case scenario, Albena's CEO Krasimir Stanev said. The company prefers to close some of the hotels rather than working at loss, he said. The company's net profit is expected to drop by 20% y-o-y to some BGN 13 mln in 2008, Stanev added.
- Bulgarian metals group Intertrust Holding plans to reduce its staff by 20% to defend its operations due to dwindling global metals prices and tighter credit markets, the holding's chief executive Roberto Mladenov said. Intertrust, which controls Lead & Zinc Complex [5OTZ], will lay off for three months up to 700 people out of its 3,400-strong workforce.
Economy and Politics
- Bulgaria’s current account gap through September swelled to 15.8% of the country's GDP projected for 2008 from 13.5% of GDP for the same period in 2007, central bank data showed. The current account deficit rose to EUR 5.38 bn from EUR 3.9 bn a year earlier, mainly because of a widening trade deficit. The country’s trade deficit for the first nine months reached EUR 6.45 bn, or 19% of GDP, versus a deficit of EUR 4.98 bn, or 17.2% of GDP a year earlier.
- Bulgaria’s Q3 GDP growth slowed to a preliminary 5.6% from 7.1% in Q2'08, according to a flash estimate of the National Statistics Institute. Growth recorded in the third quarter was stronger than in Q3’07, when the economy expanded by 4.9%. The rise in GDP in Q3’08 was due mainly to the 37.8% increase in value added in the agriculture sector, NSI said.
- Bulgaria's October consumer price inflation rose by 0.5% month-on-month and increased by 10.9% on the year, the National Statistics Office said on Wednesday. Price acceleration was slower than in September, when consumer prices rose by a monthly 1.1% and were 11% higher on a yearly basis.
- Bulgaria's trade deficit stood at BGN 11.2 bn in the first eight months of 2008 on a preliminary basis. The country's exports totalled BGN 20.6 bn, while imports stood at BGN 31.9 bn.
- Bulgarian banks granted 9,259 new corporate loans in the third quarter of 2008, versus 9,724 in the previous quarter, the National Statistical Institute announced. Households received 103,332 loans, down from 121,208 in the previous quarter. Meanwhile, the number of mortgage-backed loans dropped by half in Q3, to 6,406, totaling BGN 620.0 mln, versus 12,165, totaling BGN 761.7 mln in Q2’2008.
- Fitch Ratings downgraded Bulgaria's Long-term foreign currency Issuer Default rating to 'BBB-' Stable Outlook from 'BBB' Negative Outlook and Long-term local currency IDR was reduced to 'BBB' Stable Outlook from 'BBB+' Negative Outlook. The downgrade reflects the increasing risk of a recession in response to a marked decline in external financing flows, which will necessitate a sharp contraction in domestic demand to rein in the current account deficit, the agency said. However, given the large fiscal reserves and the broad-based commitment to the currency board arrangement, Fitch believes the risk of recession broadening into a deeper economic and financial crisis over the medium-term is limited and consistent with a Stable Outlook.
BG40 Stocks (table)
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Newsletter Weekly 2008.11.10-14.pdf, 393 Kb
