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Belgrade Stock Exchange: Belex15 ended 2-year downward trend

January 17
10:42 2013
Sinteza Invest Group

Belgrade Stock Exchange (BSE) experienced a rather volatile 2012. The year started similar to 2011, with strong growth and even stronger fall after that, but change in trend on BSE made it to end in positive territory, opposite from a year ago.

Huge rise in the first months of the market benchmark, the Belex15 index brought a yearly high of this basket of the most liquid shares at 573.98 at the start of March while negative trend after that plunged index to annual minimum of 424.47, recorded at the end of July. The sharp fall came as a result of a second wave of European debt-crisis and concerns about the probable default of some EU members, as well as domestic political and economic instability (2012 was the election year, while Serbia fell in recession, as three quarters in a row recorded decline in GDP yoy). 

After stabilization of foreign markets and their growth brought by Greece success to stay in euro-zone and ECB decision to buy bonds of heavily indebted EU countries, as well as better than expected companies’ results (especially in USA), the investors started to be active again in the Serbian capital market. Their actions brought a positive trend that last until the end of year and made index to stop a two-year downward trend finishing 2012 at 523.9 points which gives annual growth rate of 5%. The positive trend has started in October and is still active, and should become even stronger as expectations for growth in foreign economies are better than for 2012 which also imply no bigger turbulences and negative events. 

At the end of 2012, total market capitalization amounted to RSD 776bn, which is 5.35% less than in 2011.

Broader BelexLine index rose 2.9% in 2012 to 1,005.56 points. 

Due to the absent of investors during most of 2012, total turnover on the BSE was close to RSD 25bn (EUR 220m), which is the lowest annual trading value since 2000. Average daily turnover amounted to EUR 0.88m, which is a slight decrease compared to 2010, the year that was the weakest stock market year in the last decade. In 2011, the average daily turnover was EUR 1.1m. 

Observed turnover by markets on the BSE, Regulated market had 22.2bn (Listing segment (Prime and Standard market) saw RSD 9.7bn while Open market had RSD 12.5bn) and MTP segment experienced 2.8bn.

The most traded issue during 2012 was the stock in AIK Banka with the implementation of RSD 3.2bn. NIS took the second place as it was traded for RSD 2bn, while Sojaprotein registered a turnover of RSD 832m.The most traded issue during 2012 was the stock in AIK Banka with the implementation of RSD 3.2bn. NIS took the second place as it was traded for RSD 2bn, while Sojaprotein registered a turnover of RSD 832m.

Among the most traded stocks, Energoprojekt led the winners with 54.3% growth, after its single largest owner, a construction company Napred GP, seriously stepped into the ownership of the company, pulling into the race managers and employees of Energoprojekt during the summer. Imlek grew 35.2% although Salford did not complete the story about the sale of the company. Thanks to regulatory and shareholder possible inconsistencies in December, Becej-based Sojaprotein jumped 30.1% for a third place of annul gainers.

Banking stocks and Tigar were the biggest losers in 2012. Komercijalna Banka fell 17.7%, despite the EUR 100m recap and huge recovery in the last few months. 

The biggest domestic state-run bank even recorded a historical minimum of RSD 900 during the year. AIK Banka reduced market capitalization of about 5, while Universal Banka lost more than half of its value ending at RSD 1,020. Pirot-based holding Tigar fell 58.2%, after financial stability of the company was seriously deteriorated over the 2012.Among the most traded stocks, Energoprojekt led the winners with 54.3% growth, after its single largest owner, a construction company Napred GP, seriously stepped into the ownership of the company, pulling into the race managers and employees of Energoprojekt during the summer. Imlek grew 35.2% although Salford did not complete the story about the sale of the company. Thanks to regulatory and shareholder possible inconsistencies in December, Becej-based Sojaprotein jumped 30.1% for a third place of annul gainers. 

Foreign investors, that drive the trade in the Serbia’s market, had greater participation in 2012 (47.8%) compared to 2011 (39.4%). Compared to previous year, foreign investors intensified the sell off the stocks with 58.5% (35.5% in 2011) share of all stocks trading, while their purchasing participation was 53.2% (55.3% in 2011).

Conclusion

To conclude, substantial depreciation and volatility of the dinar and high interest rates, as well extremely low liquidity due to the absent of foreign investors (which searched for more stable economies and markets) weighed down the BSE in 2012. Thus, the Belex15 and BelexLine underperformed Central and East European benchmarks. 

Corporate governance was not at the highest level in some cases of Serbian listed companies, causing serious damage to investor confidence. The third largest domestic bank and member of Belex15 Index, Agrobanka was delisted as it fell into bankruptcy and since then, the index contains 14 most liquid stocks. As a consequence other banks, especially two strongest in the market, AIK and Komercijalna plunged and stayed to very low levels during the year, but near end, as overall positive trend occur on the BSE they start to recover and we expect them to outperform the overall market in 2013. Similar scenario was seen in real sector where a couple of solid performers remained hostage to the overall sentiment, but they are currently traded at very attractive levels.

Our expectations that market benchmark, Belex15 will record higher growth than in 2012 due to the few factors. First, index will be pushed by already mentioned banks stocks, AIK (it has 20% index participation) and Komercijalna (9%) that are already mentioned.

The second most liquid stock, oil and gas company - NIS (20% share in basket) with good results and expected dividend should keep it on rising trend and it represents the top of our buy recommendations. 

A special situation is seen at soy food producer - Sojaprotein as the company will be forced to buy back a significant portion of its shares in 1Q13 due to specific corporate actions. But, this might lead to delisting followed by a stable increase of the share price. 

Finally, if a state-owned power utility - Telekom Srbija, go public in 2013 (it will have the largest free float and capitalization on the BSE), that would give a new line of attractiveness to the Serbian capital market and will attract more global investors. 

Disclosure Appendix 

Sources

NBS, Statistical Office of the Republic of Serbia, Ministry of Finance, Sinteza Invest Group

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The views expressed in this report accurately reflect the personal views of undersigned analyst about the issuer of the security. The undersigned analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. The recommendation has not been disclosed to anyone prior to public release.

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