29/07/2010 - Bulgarian capital market and economy in June 2010

Highlights:

·                    June is the consecutivenegative month for the Bulgarian stock market. The capital market seems is in afree fall condition and noting is going to change the status quo in theforeseeable future. Attractive prices and an anemic demand are characterizingthe local exchange. Low liquidity and falling pricing weigh on the trading.

·                    HD Roads won theinfrastructure auction for building Lot 4 of motor highway Trakia. The Companywon offering the lowest price, of 210 mln.BGN. Shares of the infrastructurecompany has jumped in the days following the news release. Trace Group Hold isthe other public infrastructure company participating in the Trakiaconstruction, winning the Lot 2 auction in the beginning of 2010.  The project represents a major transportcorridor for the European continent and as such is financed by EU programfunds.

·                    Markets have deepened their correction in June, thoughwith lower magnitude compared to May. Benchmarks we track, largely completedwith losses.Greek equities were the worst performers in the month of June,being on the bottom of the table not for a first time. Athens stock marketindicator has lost 35 percent of its value since the start of 2010. Fiscalproblems of our southern neighbor have its say.

·                    Export is recognized as the new engine for theBulgarian economy. April numbers and those for the first four months of theyear draw a very optimistic picture. Exports jumped by hefty 41 percent for thefirst four months of the year, compared with the same time span a year earlier,while exports rose only by 2 percent. Import is a function of economic agents’incomes and of capital inflows, FDIs for example.

·                    Producer prices index keep its upward directionin June, which will probably be maintained in July as well, due higher pricesof natural gas. Higher producer prices are not transferred in to the consumerbasket of goods and services, represented by the HICP.

·                    Industrial production declined by 0.9 percent inMay, compared to April, but on a yearly basis a minimal increase of 0.4 percentis evident. Industry is still in a hibernation mode. High natural gas prices,introduced in first of July, will additionally depress the industry activity.

·                    Now, it seems that credit institutions haveoverwhelmed their liquidity problems and now cost of funds is on focus.Interest rates on newly contracted deposits are dragging down, close to thepre-crisis numbers and continue to converge.

·                    Households’ deposits keep their winning streak.In May their value passed 26 bln. BGN for the first time inhistory. By contrast, commercial banks are repaying their loans to mother-banks,situated outside Bulgaria.

·                    Interest rates on newly lent housing loans andfirms loans are converging at a fast pace to pre-crisis levels. Consumer loans however remain far more expensive than theirvalues before the global financial system melt down.

·                    Interest rates and volume of new business on consumptionand housing loans in leva and euro are declining, signaling an anemic demand andalso means that households expectations for the economy and their ability topay debts are negative.

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