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CAPITAL MARKET

Stock market has short-term growth potential but little for long-term

It was a quiet mood on the BSE floor again over the last two weeks, with thin trading and high volatility resulting from it.
Over the past four weeks, the SAX index reached a high of 181.29 points and a low of 169.41 points. On October 3, the index closed at 176.39, down 0.9 percent since the beginning of the year. However, in dollar terms, the decrease is 6.7 percent, which means that a foreign portfolio investor investing in the SAX would lose 6.7 cents out of each invested dollar.
By comparison, the Hungarian stock index BUX would bring a 53.5 percent return on investment in dollar terms, the Polish WIG would bring a 2.6 percent return, while the Czech PX-50 fell by 17.6 percent in dollar terms. The biggest growth of all was achieved on the Russian stock market, whose MT-50 stock index jumped 193.7 percent in dollar terms since the beginning of 1997.

It was a quiet mood on the BSE floor again over the last two weeks, with thin trading and high volatility resulting from it.

Over the past four weeks, the SAX index reached a high of 181.29 points and a low of 169.41 points. On October 3, the index closed at 176.39, down 0.9 percent since the beginning of the year. However, in dollar terms, the decrease is 6.7 percent, which means that a foreign portfolio investor investing in the SAX would lose 6.7 cents out of each invested dollar.

By comparison, the Hungarian stock index BUX would bring a 53.5 percent return on investment in dollar terms, the Polish WIG would bring a 2.6 percent return, while the Czech PX-50 fell by 17.6 percent in dollar terms. The biggest growth of all was achieved on the Russian stock market, whose MT-50 stock index jumped 193.7 percent in dollar terms since the beginning of 1997.

Regarding the Slovak stock market, we do not foresee sustained long-term growth, but there is certain short-term upward potential. Overall trading volume on the Slovak stock market for the last two weeks totaled 2.1 billion Sk, down from 2.6 billion Sk for the previous two weeks.

Investors' interest was as usual focused on the blue chips - Nafta (closed at 1546 Sk, up 23.7 percent from last week), Slovakofarma (closed at 5150 Sk, up 1 percent from last week), and VSŽ (closed at 664, up 2.5 percent from last week).

The Harvard funds were moving stakes of Plastika and Chemolak from Harvardská Burzová Spoločnosť into Harvard's Prvá Strategická and Druhá Strategická at relatively high prices. The pharmaceuticals producer Slovakofarma announced that it will offer its newly issued shares for sale at a price of 4,879 Sk ($144) per share. The new shares will be offered to current shareholders, who were given the right of first refusal during the October 9-10 subscription.

S.L.Pharma Holding, a management-owned majority shareholder who controls 78 percent of Slovakofarma's voting rights, will subscribe for its own portion and for all shares that will remain unsubscribed.

It also announced it would offer up to 350,000 shares via GDRs to international investors. Slovakofarma is the first fully private Slovak company which will raise equity capital via GDRs on international capital markets. Slovnaft was still under the control of the National Property Fund when it made its GDR offering in summer 1995.

Slovnaft embarks on building spree

Slovnaft, the Slovak sole oil refiner, plans to build a chain of 18 gas stations in Poland by the end of the year 2000. For this purpose, the company established a joint venture in March, 1997, between Slovnaft Polska and a Polish distributor, J.S. Energy Warsaw (33 percent stake). Slovnaft plans to purchase land for four filling stations by the end of this year, and intends to contract the construction work to Slovak companies.

VSŽ puts expansion on hold

VSŽ's vice-president, Anton Jura, said that the steel maker was holding negotiations with the owners of Škoda Plzeň, a Czech engineering company, about VSŽ purchasing the company. However, the financial demands of Škoda's owners were unacceptable, Jura said.

Jura added that VSŽ is not contemplating an acquisition of another engineering company and will rather seek to attract foreign companies to create joint ventures with its loss-making engineering subsidiaries. At the end of 1996, VSŽ had a higher-than-20 percent stake in 94 Slovak and 15 foreign companies. Thomson BankWatch updated its rating for Všeobecná Úverová Banka (VÚB), Slovakia's largest commercial bank. Thomson BankWatch granted VÚB a rating of LC-1 for short-term liabilities, BB+ rating for long-term liabilities and IC-C rating for overall market position and financial health.


The domestic bond market has been mired in deep problems as liquidity almost disappeared. High T-bill yields drew attention away from the corporate sector, which witnessed only a few rather insignificant trades.

Extremely low liquidity compounded mispricing on the Slovak bond market.

The majority of recorded trades are priced significantly out of the market, therefore the entire corporate bond market does not reflect the prevailing situation.

Low demand and high required yields have caused the cessation of all issuance activities. Since February, there has been no significant issue coming to the market, except for T-bills. Large domestic corporations tap the international capital markets for funding.

Coming to the markets soon will be a $150 million Eurobond of Slovenské Elektrárne, a monopoly power utility. The issuer was assigned a BBB- foreign currency credit rating by Standard & Poor's, which is the same level as the sovereign rating. The rating reflects the issuer's dominant position in electricity supplies and transmission, as well as its state ownership and support.


Prepared by ING Bank N.V., Bratislava branch in cooperation with ING Baring Securities (Slovakia), o.c.p.,a.s.

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