- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
The year of risk
submited on 18.01.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 18.01.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
The past 2007 will be remembered as the year of considerable capital market development. The stock exchange trade registered records from intensity and prices’ perspective. In line with this, its attractiveness as a place for raising capital increased – we witnessed not only growing number of initial offerings (some of which raised record resource), but also more active use of the stock exchange channel for attracting fresh financial resource via capital raising. All this in the context of the crisis on the international financial markets, which induced solid liquidity shrinking, risk boosting and rising financial resource prices on a global scale.
The dynamic development of the stock exchange market in Bulgaria is combined with a very interesting change in savor’s behavior. After many years the Bulgarian savor was notable for their significantly low propensity to take on risk (quite explainable on the background of the negative experience with the savings sunk in pyramids and bankrupted banks in the mid 90’s and the generally low investment culture), there is in the last year a notable focus shifting toward high-yield and respectively high-risk investment vehicles. And despite that the bank deposit will probably long keep its leading position among savings’ instruments, the alternatives attract even larger interest. Our regular survey of personal financial wealth of households shows that institutional investors (pension and mutual funds, life insurance companies) already manage 10.2% of population’s savings. The share of the financial wealth, directly invested in securities, expanded to some 6% (compared to a year earlier this share being 4%). There is also a process of transformation of “hidden” money balances into more productive investment vehicles.
The interest toward a relatively new financial market niche – collective investment vehicles – notably accelerated. A specially conveyed Industry Watch inquiry among the mutual funds, which we made in the end of the year showed that individual investors’ interest toward this investment form could be described as considerable (according to 72% of the interviewed). What is more, the participants registered unambiguously concentration of demand on high-yield funds, characterized by the highest risk levels. Such channeling of interest seems logical with the record levels of yield in mind (in some cases above 100%), achieved by some funds.
The improvement of the population’s investment culture and the acceleration of the propensity toward taking on more risk is a logical process, which is determined by complex factors. On one hand, the impact of the development of the broad economy is undisputed – the stable growth and employment improvement make future planning easier and extend the savings’ horizon. The growing wages and the reduction of the tax insurance burden increase the population’s disposable income, creating respectively additional opportunities for savings’ accumulation and extending their maturity terms. The confidence in the national currency and the financial system stability could also be pointed out among main factors, stimulating the change in consumer behavior. Last but not least, with the impressing rate of return, registered with some stock exchange positions (especially on the background of negative deposit interest in recent months), it is not surprising, that more and more people aim at relatively fast increasing their savings, although at the stake of higher risk. The question is open however that with the lack of sufficiently reliable risk measurement for individual stocks (mostly due to lack of long history) there is a great probability for some investors to completely ignore the risk.
What is individual investors and those managing their savings to expect from here on? The reversion of exchange indices’ dynamics since November cooled down optimists’ enthusiasm. And although in the beginning of 2008 the future of the capital market did not seem that promising, as it was a year earlier, the end-pessimists will hardly have any reason to be satisfied. Domestic macroeconomic fundamentals remain stable and do not suggest considerable stock market fluctuations. The trade dynamics and price growth will probably be more moderate than last year’s, but large-scale liquidation of positions from the side of investors is for now not being expected.
The negative influences on the local stock exchange will be rather external – mainly due to the more tangible transition of the global financial crisis effects onto the domestic financial market. We must also not ignore the circumstance that despite its dynamic development the Bulgarian capital market remains relatively low liquid and this induces preconditions for certain volatility when financial resource is being withdrawn. In the same time investment opportunities continue to expand – as a result of the expected new wave of public offerings (some 50 companies have declared interest toward listing), the more active privatization of minority stakes through the stock exchange, the further development of collective investment vehicles, the potential introduction of a new platform for trading on the stock exchange and others.
The dynamic development of the stock exchange market in Bulgaria is combined with a very interesting change in savor’s behavior. After many years the Bulgarian savor was notable for their significantly low propensity to take on risk (quite explainable on the background of the negative experience with the savings sunk in pyramids and bankrupted banks in the mid 90’s and the generally low investment culture), there is in the last year a notable focus shifting toward high-yield and respectively high-risk investment vehicles. And despite that the bank deposit will probably long keep its leading position among savings’ instruments, the alternatives attract even larger interest. Our regular survey of personal financial wealth of households shows that institutional investors (pension and mutual funds, life insurance companies) already manage 10.2% of population’s savings. The share of the financial wealth, directly invested in securities, expanded to some 6% (compared to a year earlier this share being 4%). There is also a process of transformation of “hidden” money balances into more productive investment vehicles.
The interest toward a relatively new financial market niche – collective investment vehicles – notably accelerated. A specially conveyed Industry Watch inquiry among the mutual funds, which we made in the end of the year showed that individual investors’ interest toward this investment form could be described as considerable (according to 72% of the interviewed). What is more, the participants registered unambiguously concentration of demand on high-yield funds, characterized by the highest risk levels. Such channeling of interest seems logical with the record levels of yield in mind (in some cases above 100%), achieved by some funds.
The improvement of the population’s investment culture and the acceleration of the propensity toward taking on more risk is a logical process, which is determined by complex factors. On one hand, the impact of the development of the broad economy is undisputed – the stable growth and employment improvement make future planning easier and extend the savings’ horizon. The growing wages and the reduction of the tax insurance burden increase the population’s disposable income, creating respectively additional opportunities for savings’ accumulation and extending their maturity terms. The confidence in the national currency and the financial system stability could also be pointed out among main factors, stimulating the change in consumer behavior. Last but not least, with the impressing rate of return, registered with some stock exchange positions (especially on the background of negative deposit interest in recent months), it is not surprising, that more and more people aim at relatively fast increasing their savings, although at the stake of higher risk. The question is open however that with the lack of sufficiently reliable risk measurement for individual stocks (mostly due to lack of long history) there is a great probability for some investors to completely ignore the risk.
What is individual investors and those managing their savings to expect from here on? The reversion of exchange indices’ dynamics since November cooled down optimists’ enthusiasm. And although in the beginning of 2008 the future of the capital market did not seem that promising, as it was a year earlier, the end-pessimists will hardly have any reason to be satisfied. Domestic macroeconomic fundamentals remain stable and do not suggest considerable stock market fluctuations. The trade dynamics and price growth will probably be more moderate than last year’s, but large-scale liquidation of positions from the side of investors is for now not being expected.
The negative influences on the local stock exchange will be rather external – mainly due to the more tangible transition of the global financial crisis effects onto the domestic financial market. We must also not ignore the circumstance that despite its dynamic development the Bulgarian capital market remains relatively low liquid and this induces preconditions for certain volatility when financial resource is being withdrawn. In the same time investment opportunities continue to expand – as a result of the expected new wave of public offerings (some 50 companies have declared interest toward listing), the more active privatization of minority stakes through the stock exchange, the further development of collective investment vehicles, the potential introduction of a new platform for trading on the stock exchange and others.
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