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Croat stocks slump but rebound may be round corner

Croatia's small stock market, which soared last year on the back of two public listings, has plunged more than 30% since December, but the bottom may be in sight, say analysts.

The Zagreb Stock Exchange's Crobex index of 30 shares rose almost 60% to life-high levels last year after the government listed stakes in oil concern INA and telecoms operator T-HT. Both companies are also listed in London.

The index closed at 3,611 points on Tuesday, 31.1% below the 5,239 high reached in December. Zagreb's bourse has a market capitalization of 307 billion Croatian kuna ($66.5 billion).

Analysts said the market was taking its cue from recent global turmoil, although the presence of foreign investors is relatively limited, and there were also local factors at play.

Zoran Ilic, head of asset management at Ilirika Investment, said there had been a lot of panic selling by first-time private investors who had bought INA and T-HT shares, many with the help of bank loans, and were now selling to pare their losses. “The fundamentals are good, companies published good sets of annual results. But the whole market was overpriced, and we are closer to realistic levels now,” he said.

Hrvoje Stojic of Hypo Alpe Adria Bank said local stocks were falling across the board, dragged down by the two big caps - INA and T-HT, and could fall further in the coming days.

However, despite poor market sentiment, he did not expect the Crobex to pierce the key 3,000 point support level before rebounding.

“We are becoming an attractive buy. If the correction continues, some of the well-established local companies, which have already been interesting, could become takeover targets,” he said.

The European Union candidate country's market has also been weighed down by liquidity constraints related to the central bank's restrictive monetary policy and a fight to curb credit growth.

Sentiment was further soured by the approaching April 12 deadline for the sale of war veterans' stocks, held in a special war veterans' fund that comprises T-HT and INA shares.

The government has distributed free of charge 7% of both companies to veterans of the 1991-95 war of independence, but they could not sell the shares until the end of this week.

“The government has taken steps to reduce pressure on the sell side after the lock-up expires, but prices are already correcting now,” said Ilic.

Stojic said the fear of the post-lockup effects were already priced in and he expected no major changes next week.

“I think that for the rest of the year, there will be more positive factors and the Crobex could rise, so the level of around 4,200 points should not be out of reach.” (Reuters)