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Today, we decided to bring you a brief overview of the bid/ask spread of the Croatian, and Slovenian companies, based on their broadest indices, with data since the beginning of 2022.

First of all, what is a bid/ask spread? In simplest terms, the bid/ask spread is the difference between the highest price a buyer is willing to pay, the “bid” price, and the lowest price a seller is willing to accept, the “ask” price. The narrowness or wideness of this spread then is important to investors of a given stock. This is because of what this narrowness/wideness represents. A stock that has a narrow bid/ask spread is usually a liquid (or rather, more liquid stock) as compared to other stocks on a given market, meaning that there are more people that are willing to trade it, on both sides, and thus the difference between the bid and ask sides is narrower. This means that the costs of purchasing/selling the shares of a given stock are lower, which in turn, also promotes the attractiveness of a stock. Besides investors themselves, companies can employ market makers for their stocks, who effectively reduce the bid/ask spread of stock, thus in turn attracting more investors.

On the other hand, stocks with wider bid/ask spreads are less liquid, and the costs of investment into them are thus inherently larger, due to the larger difference any investor has to pay to either invest or sell their position. Also, stocks with the larger bid/ask spread usually have less turnover, meaning that it’s not only more expensive to invest in them, but it is also harder to invest a larger amount of money without influencing the stock price significantly, and it’s also harder to sell your position (especially a larger position!).

With that out of the way, what are the average bid/ask spreads of Croatian and Slovenian companies?

Average bid/ask spread of CROBEX constituents (2022 – 2023 YTD, %)

Source: Bloomberg, InterCapital Research

For Croatia, we decided to look at the broadest index that is representative of the larger amount of the Croatian equity market, CROBEX. Out of the observed companies, the largest average bid/ask spread is recorded by FTB Turizam, at 3.96%. Following them, we have Jadroplov at 3.67%, Ingra, at 3.34%, and Plava Laguna, at 3.21%. This would mean that investing in these stocks would be significantly more expensive from the get-go due to the difference in the prices, and it could also be said that the liquidity and turnover of these stocks are quite low. On the other hand, the lowest average bid/ask spread is recorded by Hrvatski Telekom, at 0.47%, followed by Valamar Riviera at 0.55%, and Atlantska Plovidba at 0.57%. Following them,  we have Adris (pref.) at 0.65%, Podravka at 0.73%, and ZABA and SPAN, both at 0.87%, respectively. All of these companies, except for Atlantska Plovidba and ZABA, employ a market maker but are also some of the most traded stocks on the ZSE. When it comes to Atlantska Plovidba and ZABA, their stories are a bit different. For Atlantska Plovidba, even though they do not have a market maker, it is one of the most liquid stocks on the exchange, with a lot of investor participation. ZABA on the other hand has a really small free float of less than 4% (free float being the number of shares that can be traded on the exchange at any given time), and as such, the price movements when any trade happens will not change much.

Average bid/ask spread of SBITOP constituents (2022 – 2023 YTD, %)

Source: Bloomberg, InterCapital Research

Moving on to Slovenia, the largest average bid/ask spreads are recorded by Equinox, at 5.36%, Unior, at 4.77%, and Luka Koper, at 1.55%. Several things have to be noted here; even though the Ljubljana Stock Exchange (LJSE) has far fewer listed companies, and SBITOP itself has fewer companies compared to CROBEX, the majority of the companies in the index, especially the larger weight ones have a quite decent turnover and liquidity. Furthermore, one can also see the effect of the market makers on the bid/ask spread here; the first 3 mentioned companies are the only ones that do not have a market maker, and their turnover and liquidity will also be inherently lower. On the other hand, Krka has the lowest average bid/ask spread at 0.51%, followed by Triglav at 0.64%, NLB at 0.68%, and Petrol, at 0.75%.

What can be taken away from this data is that the relationship between the bid/ask spread, liquidity, and turnover is a 3-way street. Improvements in any of these factors could lead to improvements in the remaining factors. However, influencing liquidity is quite hard when the bid/ask spread is large, and there are not a lot of investors willing to invest in a certain stock. Influencing turnover can be done, but this again would come at a much higher cost if the stock is illiquid and the bid/ask spread is large. What can then be said is that the reduction in the bid/ask spread is the first thing a company could do to improve its position in the market.

Of course, this is only talking about the market conditions of a given company’s stock, and not taking into account a company’s business results, business environment, opportunities for growth, corporate governance, transparency, and many other qualities a potential company should have (or strive to have/improve) in order to attract more investors.

InterCapital remains dedicated to making investments in the region more attractive, by reinforcing transparency and liquidity, and we thank our partners for supporting us in achieving this goal.

We are proud to announce that both Krka and Triglav have renewed their Market Making Agreements with InterCapital Securities. As the market marker, InterCapital will continuously put both bid (buy) and ask (sell) orders on KRKG and ZVTG shares at a pre-defined spread. The idea is to enable investors to buy or sell the shares (up to a certain size) at any time within a reasonable volatility range.

InterCapital is already an established market maker in Croatia, covering AD Plastik, Podravka, Hrvatski Telekom, Končar, Arena Hospitality Group, Atlantic Grupa, Valamar Riviera, Adris (both regular and preferred), and SPAN, as well as the 2 ETFs, 7CRO and 7SLO.

In Slovenia, besides Krka and Triglav, InterCapital acts as a market maker for Petrol, Sava Re, NLB, and Cinkarna Celje. We are proud of having earned the companies’ trust and will do our best to continue providing the best service possible.

By the end of December 2022, the Slovenian mutual funds AUM equaled EUR 3.95bn, which is a decrease of 8.8% YoY, and 4.8% MoM.

The Slovenian Securities Market Agency, ATVP, has recently published the latest report on the changes recorded by the Slovenian mutual funds, for December 2022, and as such, the data for the entire of 2022. As 2022 has been marked by a lot of uncertainty due to high inflation rates, the deteriorating macroeconomic situation, and the war in Ukraine, among others, it is interesting to see how the Slovenian mutual funds performed during this period. Looking at the data, by the end of 2022, the assets under management (AUM) of Slovenian mutual funds amounted to EUR 3.95bn, representing a decrease of 4.8% MoM, and 8.8% YoY.

Looking at the investments inside the funds, the majority of them are still maintained inside shareholdings, which accounted for 69.6% of the total, or EUR 2.75bn. This represents an 0.8 p.p. decrease in MoM, and 1.7 p.p. YoY. Following them, we have bonds at 16.4% of the total, or EUR 648m, an increase of 0.9 p.p. MoM, and 1.1 p.p. YoY, and the money market, deposits & cash, at 7.5% of the total (or EUR 297m), representing an increase of 0.2 p.p. MoM, and 1.7 p.p. YoY. Finally, we have investment funds, at 5.8% of the total, or EUR 229m, representing a decrease of 0.4 p.p. MoM, and 1.5 p.p. YoY.

In absolute terms, on a YoY basis, shares declined by EUR 341m, or 11%, followed by investment funds at EUR 87m, or 28%. On the other hand, the largest increase was recorded by the money market, deposits & cash, which increased by EUR 47m, or 19%. On an MoM basis, the most significant absolute decrease was recorded by shares, which declined by EUR 174m, followed by investment funds, at EUR 27m. No other asset class recorded significant growth/decline on an MoM basis.

Total assets of Slovenian mutual funds (June 2007 – December 2022, EURm)

Source: ATVP, InterCapital Research

However, even though it can be seen that equity holdings were the ones that declined the most during the month, we can look at this more closely by breaking them down into domestic and foreign issuers’ equity securities. If we look at it this way, we can see that domestic equity securities amounted to EUR 55.9m in December 2022, representing a decrease of 2.2% MoM, and 21.5% YoY. On the other hand, foreign issuers’ equity securities amounted to EUR 2.70bn, representing a decrease of 6% MoM, and 11% YoY.

Equity holdings of Slovenian UCITS funds (October 2007 – December 2022, EURm)

Source: ATVP, InterCapital Research

This would mean that by far, the largest driver of the decline in December was the foreign equity holdings of the mutual funds. Furthermore, if we looked at the net contributions to the funds for this month, they amounted to EUR 14.4m. If we looked at the entire 2022, this number would amount to EUR 208m, a decrease of 57% YoY. This would mean that the decrease in equity was driven by the decrease in the value of the assets themselves, which makes sense considering that the current macroeconomic and geopolitical situation is putting a lot of pressure on equity markets across the world. Also, when it comes to net contributions, 2021 was a year of strong recovery and growth for the equity markets, and as such, the sentiment was quite positive, leading to a lot of investors entering the space, thus leading to a higher amount of redemptions. In fact, 2021 is quite an outlier in this regard, as net contributions in 2020 amounted to EUR 163m (meaning that 2022 was 28% higher compared to it), while in 2019 they amounted to EUR 68.9m, meaning that in 2022, they were over 2x higher than it. Of course, it could be argued that the net contributions should grow over time, as the market develops and attracts new investors (or in the case of mutual funds, subscribers). This is in fact, the case, at least when it comes to subscribers, as the total number of subscribers grew by 3.1% YoY in December 2022, 9.3% compared to 2020, and 11.8% compared to 2019. All of this combined would again, reinforce the fact that the decrease came mainly as a result of a decline in value.

Net contributions into the Slovenian mutual funds (January 2016 – December 2022, EURm)

Source: ATVP, InterCapital Research