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Market still in doldrums as 1998 corporate results are prepared for release

The last two weeks were very quiet on the equity market. Trading activity slowed down as the market waited for the 1998 financial results of Slovak corporations. Investor interest on the capital market is now mainly focused on state papers, which dominate the market.
Average daily turnover since the beginning of March declined to 60.8 million Slovak crowns. and there are no indications a better performance will occur in the near future. The index is oscillating around 83 points and closed at 83.17 on March 23. Pharmaceuticals company Slovako-farma, steel maker VSŽ and oil and gas storage company Nafta Gbely lost 12.1%, 5.6% and 5.6% respectively, however only few shares were traded. Shares of VSŽ dropped for a short while to 150 crowns, but then stabilized again at the 170 crown level. Only two shares beat the market - Plastika Nitra gained 31% and closed at 393 crowns, while insurer Slovenská Poisťovňa edged up to 849 crowns. The heavily indebted corporate sector is struggling with financial problems and will deteriorate even further due to the unfavorable economic situation in the country.

The last two weeks were very quiet on the equity market. Trading activity slowed down as the market waited for the 1998 financial results of Slovak corporations. Investor interest on the capital market is now mainly focused on state papers, which dominate the market.

Average daily turnover since the beginning of March declined to 60.8 million Slovak crowns. and there are no indications a better performance will occur in the near future. The index is oscillating around 83 points and closed at 83.17 on March 23. Pharmaceuticals company Slovako-farma, steel maker VSŽ and oil and gas storage company Nafta Gbely lost 12.1%, 5.6% and 5.6% respectively, however only few shares were traded. Shares of VSŽ dropped for a short while to 150 crowns, but then stabilized again at the 170 crown level. Only two shares beat the market - Plastika Nitra gained 31% and closed at 393 crowns, while insurer Slovenská Poisťovňa edged up to 849 crowns. The heavily indebted corporate sector is struggling with financial problems and will deteriorate even further due to the unfavorable economic situation in the country.

Low GDP growth shocks observers

Slovak GDP increased by 0.5% year-on-year in real terms in the fourth quarter of 1998, totalling 182 billion crowns ($5.04 billion) compared with 5.1% growth in the third quarter. Full-year 1998 GDP thus reached 4.4% growth, versus 6.5% in 1997.

Developments in the last quarter of 1998 disappointed even the most pessimistic expectations, and were far below market anticipations. Nominal GDP grew by 9.7% to 717.4 billion crowns ($20.36 billion). The growth was fuelled by high domestic demand.

Economic slowdown in the last quarter of 1998 was notable in the Czech Republic and Poland as well. Real GDP in the Czech Republic declined by 4.1%, bringing the annual GDP to minus 2.7% after growth of 1% in 1997. Polish GDP in 1998 grew by 4.8% in comparison with 6.8% in 1997, against the official target of 5.6%. A quarterly breakdown shows this figure to be strongly affected by poor performance in the fourth quarter, when the effects of the Russian crisis became fully visible. Based on the latest developments in Slovakia and the central European region, analysts have revised their forecast for 1999 GDP growth. Slovak 1999 year-end real GDP should be 2% or less.

The consumer price index rose by 0.8% month-on-month and 6.9% year-on-year in February, compared with a 3.0% m-o-m and 6.8% y-o-y increase in January 1999. Prices for water, electricity, gas and fuels rose by 1.2% m-o-m and 17% y-o-y.

The unemployment rate was 16.5% at the end of February 1999, up from 16.33% in the previous month. The total number of unemployed increased by 5,005 to 439,845 in February 1999.

The February 1999 trade deficit was 7.03 billion crowns ($176 million), compared with 11.2 billion crowns in the first two months of 1998. Exports in February totalled 28.264 billion crowns, while imports reached 32.536 billion.

Nafta Gbely stake back in state hands

Pressure from the government led to an agreement between the FNM privatisation agency and private firm Druhá Obchodná, which will now return a 40.9% stake in oil and gas storage firm Nafta Gbely to the state. The FNM, in return, will drop the charges it had been preparing over Druhá Obchodná's infamous 1996 privatisation of Nafta for a fraction of its market value. Druhá Obchodná will keep a 5% stake in Nafta Gbely, while Druhá Obchodná's owner, Trnava-area entrepreneur Vladimír Poór, will remain the owner of three of Nafta's unfinished gas storage facilities.

EBRD presses FNM privatisation agency to buy back 10.5% of Slovnaft

EBRD First Vice President Charles Frank expects the FNM to buy back its 10.5% stake in oil refiner Slovnaft. The EBRD bought half of Slovnaft's $113 million issue of global depository receipts at face value - 1,000 crowns per share - in 1995, and was incensed when the FNM privatisation agency shortly afterwards sold a 39% stake to Slovnaft management at an unreasonable price of 156 crowns per share. The EBRD considered this transfer as a violation of sound business practises and as unfair to the Slovak people. In April 1997, the FNM pledged to buy back the EBRD's stake, but no concrete steps have yet been taken. Slovintegra, controlled by the current management of Slovnaft, will return 10% of its stake or pay a cash equivalent of one billion crowns.

Tomáš Kmeť is an equity analyst with ING Barings investment bank

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