CEE Exchanges weather difficult 2012, set for upturn in 2013

Sea-sick sailors know that the best place to be in turbulent waters is high up in the middle of the vessel, with fresh air and a view to the horizon. Unfortunately, for stock markets in Central and Eastern Europe (CEE), that was exactly where they were not, in 2012.

Helpless at the periphery of the volatile eurozone, most suffered as the larger markets rolled about. But as sentiment calmed, the last year turned out to be a lot less damaging than expected for the CEE region.

According to the CEE stock exchange group CEESEG, performance from the Budapest, Ljubljana, Prague and Vienna exchanges was relatively robust, and the outlook is brightening as valuations remain attractive and macro economic and political factors improve, along with market infrastructure.

“…Price-to-book ratios are sending buy signals across the board,” the group said in a statement.

The implementation of the trading system XETRA in Prague allowed CEESEG to tick off another milestone in its harmonisation agenda. Budapest is set to follow Prague in the second half of 2013, joining three other exchanges in the network.

“This will help to promote liquidity at all our exchanges and to attract more international trading members to the CEE region,” said Michael Buhl and Petr Koblic, Management Board members of the CEE Stock Exchange Group, in their outlook for 2013.

In Budapest, the BUX increased by 7.1% in 2012. As of 31 December, market capitalization was €15.7bn, and average monthly equity turnover was €700.7m. The Budapest Stock Exchange recorded one technical listing in 2012.

Ljubljana’s SBITOP rose by 7.8%. Market capitalization was €4.9 billion, and average monthly equity turnover €25.2 million. In 2012 there were two bond listings, seven capital increases and five commercial paper listings.

Prague’s PX was up 14.0% in 2012, with market cap at €45.4bn, and average monthly equity turnover €830.6m. There were three new listings at PSE: the stocks of OCEL HOLDING SE and ENERGOCHEMICA SE joined the Standard Market, while the Prime Market featured the dual listing of Tatry mountain resort, a.s. In addition, there was a record breaking volume of €13.6bn in bonds registered at Central Securities Depository Prague.

CEESEG described the performance of Vienna’s ATX as excellent, as it posted a 26.9% increase. At the end of the year the exchange’s market cap was €80.4bn, and average monthly equity turnover €1.5bn. There were four capital increases this year and a record number of new corporate bonds with a total issuing volume of €5.5bn.

Analysis from Vienna-based Eerste Group says regional markets will be driven by two major themes in 2013: economic weakness and even recession are increasingly tangible but the downturn is likely to bottom out in Q1 2013. What is more, the eurozone crisis is not expected to massively escalate. “Although the trouble is not over and a bottoming out cannot be called yet, we at least have more clarity as to where we are in the cycle,” a report said.

Based on these two assumptions, coupled with the strong reliance on central banks, equity markets have benefitted from an overall decrease in risk aversion. The liquidity abundance and the search for meaningful yields have contributed as well.

“These factors should lend support to CEE equity markets well into 2013, when we expect an overall continued upward trend. Going forward, more fundamental arguments such as improving earnings growth will be needed to carry markets further,” said Henning Esskuchen, head of CEE Equity Research at Erste Group.

CEE/SEE performed well in the final quarter of 2012, notably the Czech Republic, Slovenia, and Serbia. Croatia confirmed analysts’ bearish view but Poland did better than expected, receiving more impetus from monetary easing.

“We are actually pleased that Romania did so well, while our main reservation has been liquidity. Finally, calling Turkey a sound overweight has been definitely the right call, while Russia disappointed,” summarizes Esskuchen.

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