Western Balkan is uncorrelated with global stock exchanges developments!


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The region with the highest rates growth in the world!

We strongly believe that there is a strong growth of stock shares prices coming to Western Balkan region. Shares of many companies from region of former Yugoslavia region are now quoted at prices similar or even lower (!) as at the beginning of privatization. There is again a total re-sell with initial or even lower prices, however only a few of us are investing. When we will make you large returns, a lot of people will be sorry for missing the opportunity again. But at that time it will be too late!

One of the key factors for the upcoming growth are lower deposit interest rates for saving in banks in whole region. Contrary to popular belief, the main important factor for shares price level represents the level of interest rates. Sound business foundation and operations (basic indicators) are indicating share prices only in long term, while psychology of mass investing is the main reason for many short-term fluctuations. By very low returns on bank deposits, more and more money will be transferred to stock shares, either directly either through investment funds. By economic logic, the higher demand, the higher will be the prices of securities! As already mentioned, the value increase in southern countries will be significantly higher than in Slovenia and Croatia. Croatia already has constantly the highest valuation of shares in region (this does not mean that they cannot increase even more) also due to Croatian pension system, ensuring constant inflow of liquidity to local stock exchange. It invests in companies quoted on Zagreb Stock Exchange (and thereby providing significant long-term capital support to Croatian companies that are increasingly taking over companies in Slovenia and elsewhere in the region).

Countries south of Croatia, are becoming an extremely attractive investment location for foreign investors. Labour costs and taxes are very favourable; the countries also offer significant benefits and stimulations for employers. Geographical proximity of European, Middle East and former Soviet Union markets should not be overlooked. Production costs in Serbia, Bosnia and Macedonia are getting lower than for example in China or in Vietnam. Considering the lower costs of transportation, greater flexibility (lower batches and faster delivery) and higher manufacturing quality, the advantage of Balkan region is even more obvious. It is thus not surprising that all the countries of former Yugoslavia have emerged from recession and IMF predicts their further positive economic growth.

It is essential that the entire investment region of BEF Fund is gradually but surely approaching to full membership in EU and NATO. Large inflow of European funds and other foreign capital will encourage not only numerous investments in infrastructure, but also economic growth, acquisitions, company merges and increasing of domestic and foreign investment in region. Due to harmonization with European legislation, legal security and institutional framework for investment and business will also improve. All these facts will contribute to significantly higher corporate value and higher market valuation of stock shares. We expect that increasing rivalry for influence in the region between West and Russia, will significantly accelerate the integration of South Balkan countries in the EU. Remember how, years ago, EU accelerated entry of Romania and Bulgaria into EU for similar reasons, though with much more lenient criteria as applied to other new members.

We have long predicted a start of companies’ privatisation wave in Slovenia and Balkan region. In Slovenia, this started to implement faster, as Slovenia simply needs the money. And so do the banks full of forfeited shares as well as all financial holding companies that are »hardly breathing«. Therefore, the sales are unavoidable. The situation is similar also in other countries of the former Yugoslavia. There were indeed no so many failed MBO loans in the past stock market increase (as in Slovenia), however other governments require additional resources even more than the Slovenian government. Along that, they are also under pressure of International Monetary Fund and World Bank, which assisted most of these countries with loans, but now they are requesting the reform progress and privatization of state assets. EU is also pressing. It is worth remembering, that one and a half decade ago – in 2001, after acquisition of Lek (from Slovenia) a strong stock shares growth started – first at Ljubljana Stock Exchange and followed by other stock exchanges in region, even if at that time there was a big world crisis (after the crash of shares of technological and telecommunication companies). A similar scenario followed, after the acquisition of Pliva (from Croatia) in 2006. We believe that privatization will continue in all the countries of former Yugoslavia region. A growing number of acquisitions of Western Balkan companies is expected as record amounts of cash on the accounts of the multinationals due to extremely cheap financing (cost of loans for large reputable foreign companies is very close to zero). For all these reasons, we believe that a beginning of a major stock markets growth in Western Balkan region is in front of us.

Lagging values of regional indices and thereby undervaluation of the Balkan stock shares, is obvious and enormous (comparison in the attached file)! Once these indices will grow from present 15% of their former maximums to half of their former value, this will mean an increase of 233%, and in case they return to their 2007 peaks, these will represent 566% growth.

As previous experiences suggests, it will soon be too late to catch this returns. For the sake of low liquidity, the markets will grow for more than 100%, before most of investors will be aware of this, and probably even more, before they will manage to react properly. The longer the market stagnation persist, larger will then be the growth, when it occurs. The history of stock markets clearly shows with numerous examples, that the longer one market is pressing down, the stronger is then its growth, when the tide comes along again.

The time for invest is rapidly running out! When the Balkan again becomes the main cover theme, it will be too late! Until then we will already create you excellent returns!

Kind regards,
Denis Vengust

Investment Manager
Balkan Emerging Frontiers Fund

Telephone/fax: +41 22 518 02 39


The Fund is a Segregated Portfolio of JP SPC 5, a segregated portfolio company with limited liability.

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