The total equity turnover on the Ljubljana Stock Exchange increased 14.9% MoM, while SBITOP grew slightly by 0.6% MoM, ending it at 1,199.45 points. We are in a period of dividend announcements and insurers have already announced dividends yielding between 6.4% and 7.3%. We are still waiting for the announcements of index heavyweights which are due in the middle of this month.

The total equity turnover on the Ljubljana Stock Exchange amounted to EUR 26.6m, representing a decrease of 63% YoY, and a solid 14.9% MoM increase. This would also mean that the average daily turnover in March amounted to EUR 1.2m. However, we note that the strong YoY decrease was exclusively due to exceptionally strong trading in March last year which amounted to EUR 72m. It was a period of strong geopolitical uncertainty, marked by the war in Ukraine, the start of sanctions, and the rise in the volatility of energy prices.

In terms of the indices, Slovenia’s main index, SBITOP, increased slightly by 0.6% MoM and ended the month at 1,199.45 points. At the same time, SBITOP TR also grew 0.6% MoM, ending the month at 1,516.45 points.

Monthly equity turnover on LJSE [January 2022 – March 2023]

Source: LJSE, InterCapital Research

In terms of the block trades, no block transactions were made during the month. Looking at equity turnover, the largest turnover was recorded by Krka, with a turnover of EUR 9.7m (or 36.7% of the total equity turnover), followed by NLB, at EUR 8.6m (or 32.2% of the total), Triglav at EUR 6.1m, Cinkarna Celje at EUR 1.5m (or 5.7% of the total) and Petrol at EUR 1.4m (or 5.2% of the total). In fact, this would mean that the top 5 most traded stocks accounted for 85.9% of the total turnover, while the top 10 would account for 98.5%.

Taking a look at the SBITOP constituents’ performance during the month, we can see that 7 out of 10 companies recorded growth during March, while only NLB noted a significant decline of 5.9%. The largest increase was recorded by Krka, with a growth of 2.9%. Krka was closely followed by Petrol with a 2.7% share price increase. Both of these companies drove SBITOP’s growth, offsetting NLB’s decline completely. NLB’s share price fell due to the pressure on banking sector share prices as the discoveries of weaknesses in the balance sheets have resulted in a collapse of three American mid-size banks while Credit Suisse is being taken over by UBS. In all cases, regulators jumped in either to devise a rescue or to lend against the collateral at face value. This all points to potential threats for banks of all sizes from rising interest rates. In the potential scenario, banks will have to start paying depositors more to stop them from taking out their money, which squeezes their margins and helps explain why some banks’ stock prices have plunged. The majority of banks have long-term bond portfolios whose prices have decreased during the last period so they have unrealized losses. These banks will be at a greater risk of failure during the crisis than the ones without such losses. In case depositors would start taking out their money, those banks could potentially be forced to cover deposit outflows by selling assets, i.e. bonds at market price. This is not an expected scenario with regional banks as deposits are still growing strongly and the majority of them are insured. But there is a threat that regulators could impose further capital buffers to secure the system has enough capital even in the case that unrealized losses materialize, or rates keep growing further.

Coming back to equity performance, Triglav and Cinkarna Celje noted a positive share price development with a 2.3% and 2.1% increase during the month, respectively. Finally, Sava Re and Luka Koper ended the month in green, both increasing by 0.4% during March, respectively. Further, we note that during March, both insurers proposed their dividend payment with DY for Triglav amounting to a solid 7.3%, while Sava Re offers an attractive yield of 6.4%. Triglav will pay EUR 2.5 DPS, which is the payment within its dividend policy and Sava will, this year, pay out a slightly higher dividend of EUR 1.6 DPS (compared to EUR 1.5 in 2022). Further, NLB, too, expressed its dividend plan with EUR 5.5 DPS payment during the year, while the payment will be coming in two tranches. Also, Luka Koper reported strong results too, which might result in a higher dividend compared to the year before. Finally, Cinkarna did not yet publish a dividend proposal. However, Cinkarna noted a very good year overall and currently market expects a 13% DY on the share price.

Performance of SBITOP constituents (March 2023, MoM, %)

Source: Bloomberg, InterCapital Research

At the end of February 2023, the NAV of the Croatian pension funds equaled EUR 18.1bn, representing an increase of 4.4% YoY, and 0.7% MoM.

The Croatian Financial Services Supervisory Agency, HANFA has recently published the latest report on the Croatian capital markets. According to the report, the NAV of Croatian pension funds amounted to EUR 18.06bn, representing a slight increase of 0.7% MoM, but a noteworthy one of 4.4% YoY. Given the importance of the Croatian pension funds, and the amount of assets (especially stocks) they hold, it is worthwhile seeing how they perform. Furthermore, the net contributions into the pension funds amounted to EUR 95.6m in February 2023, while on a YTD basis, they amounted to EUR 185.7m.

Croatian mandatory pension funds AUM structure change (January 2018 – February 2023, EURm)

Source: HANFA, InterCapital Research

Taking a look at the changes recorded by asset holdings, on a monthly basis, we can see growth across all but 1 of the asset classes. In absolute terms, the largest growth was recorded by investment funds, which increased by EUR 113m, or 5.8% MoM, followed by shares, which increased by EUR 87.7m, or 2.3%, and bonds, which grew by EUR 76.5m, or 0.7% MoM. On the other hand, deposits and cash holdings decreased by EUR 216.5m, or 25% MoM.

These changes are quite interesting, as the fund managers in the pension funds are responsible for looking after long-term pensionary investments, to keep and increase the value of the said pension. Here then, we can see that they’re decided to switch the investments from lower-yielding (deposits and cash) to higher-yielding assets, such as investment funds, shares, and bonds. The reason why this is interesting is the fact that pension funds are by their nature quite risk averse, but have still decided to switch to higher yielding, higher risk assets. This could be due to the fact that the returns of Croatian shares, has been quite strong in 2023, despite the situation. Furthermore, having low-yielding deposits & cash positions, in times of high inflation not only leads to negative returns but also higher opportunity costs.

Moving on to the yearly basis, the story is even brighter. All the asset holdings recorded at least some growth, with the largest increases recorded by shares (EUR +338.4m, +9.6% YoY), bonds (EUR +158.2m, +1.4% YoY), money market holdings (EUR +111.9m, +127.6% YoY), and finally, deposits and cash (+EUR 109.9m, +20.7% YoY).

Finally, looking at the current asset structure of the pension funds, bond holdings still maintain the largest proportion, at 62.5%, remaining roughly the same MoM, but recording a decrease of 1.82 p.p. YoY. Next up, we have shares, which hold 21.4% of the total, an increase of 0.35 p.p. MoM, and 1.02 p.p. YoY. Finally, we have investment fund holdings, which account for 11.4% of the total, an increase of 0.56 p.p. MoM, but a decline of 0.48 p.p. YoY.

Current AUM of Croatian mandatory pension funds (February 2023, % of the total)

Source: HANFA, InterCapital Research

One last tidbit that will be interesting to see next month is the Croatian retail bond impact. Out of the total of EUR 1.8bn that was issued by the Croatian govt., app. EUR 500m went to institutional investors, including pension funds. As such, just on this basis, we should see an increase in bond holdings in March 2023 report.