The second credit rating upgrade into investment grade should be a positive signal to the local capital market as we believe new international investors will now place Croatia on their investment map.
When observing major indices since S&P’s credit rating upgrade which took place in March, CROBEX recorded an increase of 4.1%. Meanwhile, CROBEXprime recorded an increase of 7.4%. We stress that one cannot directly conclude that the increase came solely as a result of the mentioned upgrade but in the same time it provided for additional comfort regarding the future outlook and risk premia of the country. There is no doubt in our view that the credit rating upgrade should be a positive signal to the local capital market as we believe certain new investors will now place Croatia on their investment map which should bring new and needed liquidity.
In addition to the positive stock market development which we experienced since March, this Friday another agency Fitch also raised Croatia’s credit score by one-notch to BBB- with a positive outlook, a move that takes it to the investment grade territory while in our view the positive outlook provides additional comfort – both on the macro and equity side. The upgrade came as a result of the country’s efforts in lowering public debt, balancing the budget, and improving economic growth. Furthermore, as a reminder Croatian GDP increased by 3.9% YoY in Q1 2019 due to a strong increase in household consumption by 4.4% YoY and investments by 11.5% YoY.
Now having the second rating agency upgrade into investment grade adds additional tailwind as it might attract a new pool of investors who are seeking investments only into countries with investment grade credit rating by two or more credit rating agencies. We will closely observe the stock market performance after the second hike – let’s hope for the show.