IC Market Espresso 13 Jan 2020

Think Globally, Act Locally – Value Comparison of Regional & Global Shares

After a strong increase in share value witnessed last year across the region one might ask themselves if the bull run has come to an end or does the regional share market still hold some potential for growth in 2020.

For starters, let’s take a look at how regional markets performed in the previous year to see which market performed the best and which lagged behind.

Selected Indices Performance in 2019 (%)

As one can see from the chart, all regional markets posted a strong performance in 2019. Among them, Romania proved to be the most successful one as the BET index posted a strong 34% YoY increase in value. Meanwhile the Polish WIG index posted a mere 1.8% increase by the end of the year.

However, the question remains. Can markets record yet another year of growth? Well, for starters let’s turn our attention to the market cap to GDP ratio, or the Buffet Indicator as it is sometimes referred to. The ratio was popularized by the famous investor Warren Buffet and it compares the market capitalization of all publicly-traded shares on a single market with the country’s GDP. It was one of the indicators of the approaching storm and later the crises in 2008, which severely damaged the equity markets. As Buffett said, “The ratio has certain limitations in telling you what you need to know. Still, it is probably the best single measure of where valuations stand at any given moment” so it is often used to determine whether the share market is overvalued or undervalued.

Market Cap to GDP of Selected Markets (%)

As one can see from the chart, regional stock exchanges are far from reaching Wester Europe or US levels in terms of market cap/GDP. Furthermore, with ratios below 50%, it is safe to say that shares of regional companies are still not in overvalued territory.

Back to Basics

Since investment decisions are made based on fundamental values let us look at some key multiples used in comparing share values. At first glance, the Croatian CROBEX P/E might seem expensive compared to regional markets. However, such a valuation is significantly impacted by both the weight of tourism stocks (c. 33%) and implied growth prospects of underlying shares. What one should also take into account is that all regional indices are relatively cheaper than their counterparts represented in the MSCI Frontier Index.

P/E & EV/EBITDA Multiples of Selected Indices


Finally, one should also take into account the dividend yields provided by the indices. For investor who are more interested in high dividend shares, Romania proved to be the right place as the main index posted a dividend yield of 7%. This is due to the fact that the BET index contains a large amount of state-owned energy companies who traditionally pay out a high dividend.

Dividend Yield of Selected Indices (%)

How Often Have Slovenian Components Outperformed the Index in 2019

With a strong Slovenian equity market performance in 2019, we decided to bring you a short overview of how often Slovenian index components have outperformed the index.

We are bringing you an overview of how often the current SBITOP components managed to beat the index in 2019. For this, we calculated the percentage of times in which an individual share recorded higher yield than the index.

Percentage of Days When the Share’s Performance Beat SBITOP in 2019 (%)

As visible on the chart above, four out of eleven shares mostly performed better than the index on a daily basis. The first among them is Krka, which recorded higher yield than SBITOP 51.4% of the times. Also, the company’s share witnessed strong growth in 2019, rising by 26.6% and outperforming the index by 11.6%.

Next comes KD Group, which recorded higher yield than SBITOP 51% of the times, while outperforming it by 54.6 p.p. (the highest of all components). Petrol follows, observing a higher yield 51% of the times, while outperforming the index by 5.9 p.p. Next comes Luka Koper, whose share price observed a higher yield 51% of times while underperforming the index by 28.1 p.p.

On the flip side, Unior recorded lower yield than SBITOP 56% of the times, which is the highest of all components. Its share performed 29.6 p.p. worse than the index.

In 2019, SBITOP recorded a solid growth of 15%, ending the year at 926.1 points. When observing its constituents, 6 of them recorded a share price increase, one remained flat, while 4 recorded a share price decrease. Of those, KD Group observed the highest share price increase of 70%, followed by Krka with 27% and Petrol with 21%.

Share Price Change of SBITOP Constituents in 2019 (%)

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