Thus far in 2022, the correlation between the price change of the CROBEX10 index and S&P500 amounted to 0.14, while between SBITOP and S&P500, it amounted to 0.18.
The equity markets have been on quite a roller coaster ride in 2022, with issues ranging from inflation and interest rate hikes to fears of a coming recession on the back of high energy prices due to the war in Ukraine. In times like these, when turmoil surpassed borders and affects all countries (albeit to a varying degree), it is also expected that the negative sentiment will spill over to the equity markets.
In fact, if we look at CROBEX10, SBITOP, and S&P500 thus far in 2022, we can see that they declined by 10.5%, 16.5%, and 15.5%, respectively.
Performance of CROBEX10, SBITOP and S&P500 in 2022 (YTD, %)
Source: Bloomberg, InterCapital Research
The beginning of the negative trend can be seen right on 24 February 2022, when the Russian invasion of Ukraine began. Due to the differences in their size, their composition, and the likelihood that foreign investors will invest in a select index, some differences in the performance are to be expected. This is especially true if we take into account that SBITOP, but especially CROBEX10, is way less liquid of an index than S&P500. As such, the low liquidity also plays a role in the change in prices, as days, when the markets have a lot of stronger reactions abroad, are cushioned by the lack of liquidity, especially in Croatia.
Having all of this in mind, how correlated were the CROBEX10 and SBITOP indices to the S&P500 in 2022? Thus far in the year, the correlation between CROBEX10 and S&P500 amounted to 0.14, while for SBITOP it amounted to 0.18. Compared to 2021, the correlation between CROBEX10 and S&P500 amounted to 0.10, while between SBITOP and S&P500, it amounted to 0.19.
As 1 can be taken as a perfect correlation, we can see that in neither of the years these indices’ price movements were correlated. Despite this, the correlation between CROBEX10 and S&P500 in 2022 did increase, which would indicate that things that are influencing both indices are more pronounced. This is to be expected, as the global macroeconomic and geopolitical environment is a lot more influential this year than on an average year. For SBITOP, the correlation remains roughly unchanged, but this can be attributed to the fact that the Ljubljana Stock Exchange is on average, more liquid than Croatia. Because of this, it can react to news more quickly than the Zagreb Stock Exchange, and as such, remains unchanged. Even so, the correlation between these indices is quite low, and besides the liquidity and their size, the composition and the willingness of foreign investors to invest are also present here.