IC Market Espresso 29 Jan 2020

Croatia’s Historic Market Cap to GDP Development

For today we decided to present you with the historic development of Croatia’s Market Cap to GDP as the metric is often used to determine whether stocks are over or undervalued.

We made a brief analysis of the total market capitalization of listed companies as a % of GDP for Croatia. The historic GDP data was taken from the Word Bank s latest available publications. Market caps were taken from the statistics published the stock exchange.

The market cap to GDP ratio, or the Buffet Indicator as it is sometimes referred to, due to the fact that it was popularized by the famous investor Warren Buffet, compares the market capitalization of all publicly-traded stocks 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”. Therefore, the metric is often used to determine whether the stock is over or undervalued.

We can see that aCroatia recorded a high ratio in the pre-crisis year 2007 as much as 109%. However, after the financial crisis struck, one can notice that the ratio declined substantially as we were witnessing a lot of companies initiating squeeze out and delisting procedures. With the ratio currently standing at roughly 38%, it is clear that the market still has enough room for fresh investments and that the current share prices have plenty of room to increase (according to this single indicator). The mentioned ratio would be even lower if we accounted for the fact that a few largest companies listed on ZSE have a low single digit free float. Therefore, the market cap to GDP adjusted for free float would amount to roughly 19%.

Croatia’s Market Cap to GDP (2007 – 2019) (%)

New Data on Croatian Industrial Turnover for November 2019

Industrial turnover index in November 2019 decreased by 6.8% as compared to the previous month. If we look at destination of markets, domestic market recorded declined 3.7% MoM, while foreign market showed a drop of 14.7% MoM.

Croatian Bureau of Statistics has published the newest statistics for industrial turnover index in November 2019. According to the publication, the total seasonally and working-day adjusted industrial turnover decreased by 6.8% in November 2019, as compared to the previous month. If we look at destination of markets, domestic market recorded declined 3.7% MoM, while foreign market showed a drop of 14.7% MoM. On yearly basis we see an even stronger decrease of demand from foreign markets. The industrial turnover managed to decrease by 7.6% YoY in November of 2019 out of which the domestic market was flat, while foreign market contracted by 19.1% in the same period.

Breakdown on product types shows that turnover of Non-durable consumer goods recorded the biggest monthly drop (-19.0%), followed by Intermediate goods (-10.0%) (-5.8%), while Capital goods, Energy and Durable consumer goods recorded monthly increase of 7.5% and 12.7% respectively. November is the month when decrease in consumer goods decreases the most due to slow-down in tourism segment and lower consumption of locals as preparation for upcoming Christmas holidays. When compared to November 2018, turnover of Energy declined the most (-18.0%), followed by Non-durable consumer goods (-13,3%) and Intermediate goods (-9.0%). This is in line with seasonality of turnover showing mild autumn month of November where demand for energy has decreased.

Yesterday, the Croatian industrial sector index CROBEXindustrija ended somewhat flattish. We don’t see direct relations between statistical data releases and index performance due to significant discrepancies between the components of the index. However, since the beginning of the year, the index was slightly negative by 0.31%. We see AD Plastik at +2.1% YTD, followed by Ericson NT at +1.4%. Bothe of stocks have raised investor interest lately due to good financial performance and solid dividend outlook. Namely in 2019 they had dividend yield of 6.5% and 6%, respectively. Đuro Đaković Grupa increased by 3.1% YTD Končar was flat, while Petrokemija fell 3% and Varteks by 2%.