Dragoslav Veličković, Head of Broker Department in Societe Generale Bank in Belgrade – Prices of stocks on Belgrade Stock Exchange are not realistic

Dragoslav Veličković

Prices of stocks on the Belgrade Stock Exchange are not realistic since their value has been drastically reduced over the last 18 months because of the negative reaction of the investors on the global economic crisis. In addition to the financial crisis, local market also faced political instability in 2008 after the declaration of independence of Kosovo and the fall of Government, followed by new elections, which also had negative impact on the prices of stocks of local companies.

- Serbian stock exchange was not shaken only by the global economic crisis that started in September because the stocks of the top companies have been drastically dropping for 18 months now – says Dragoslav Veličković, the Manager of the Broker Department in Societe Generale Bank in Belgrade and, currently, the best-ranked player of virtual game "Share Game" . Ekapija’s project - "Share Game" – was introduced two months ago and it depicts virtual trading in stocks on the Belgrade Stock Exchange. The game is designed to have an educational character for the readers.

eKapija: Would you present us your portfolio in "Share Game"?

- My portfolio includes the shares of AIK banka, insurance company "Globos osiguranje", "Energoprojekt Holding", "Fidelinka", "Galenika Fitofarmacija", "Vital", "Veterinarian Institute Subotica", "Telefonkabl", "Termoelektro Enel" and "Inos Sinma". The reason why I bought the stocks from the financial sector, such as the securities of "AIK banka" and "Globos osiguranje", is because these stocks are traded on the stock exchange at the prices that are lower than their accounting value, while other indices (ratio indices) give them the advantage over the other companies in the regional financial sector. The reason why I invested in the building companies is because my opinion is that the building sector has not experienced its boom yet, and I believe that local building companies will have more work to do in Serbia in the future with large building and infrastructural projects in the pipeline. In addition to the expectation that the companies from the building sector will have more work to do in the future, I must point out that many of them, such as "Termoelektro Enel", "Telefonkabl" or "Energoprojekt Holding", still have no majority owner, so that the takeovers are also expected in this sector. In global stock exchanges, the food industry, in addition to pharmaceutics, best resists the negative market trend. For that resons, my opinion is that the drop in value of stocks of local food companies, such as "Vital" and "Fidelinka", is not confirmed by turnover, since I do not expect significant drop in sales of products of these companies. When it comes to the reason for investment in stocks of "Galenika Fitofarmacija" and "Veterinarian Institute Subotica", my opinion is that the positive business results of these companies will have effect on prices of their stocks. One of the reasons for investment in stocks of these companies is because they have transparent management. As far as the investment in stocks of "Inos Sinma" is concerned, I think that recycling business in our country does not have the role it deserves, and this company has great potentials to become the leader in that domain in local market.

eKapija: How has the value of your portfolio been changing over the last two months?

- The value of stocks decreased from initial 1,000,000 RSD to 878,197 RSD on January 28, 2009. Most stocks registered drop in value, the stocks of "Termoelektro Enel" have not event been traded, while the price of stocks of "Telefonkabl" has remained the same over the last two months, but the stocks of that company grew by 89.4% since the end of October 2008 because of significantly higher demand for these stocks.

eKapija: How is the situation on Belgrade Stock Exchange now?

- After political crisis and problems with Kosovo, local market was also hit by the effects of the global financial crisis since foreign investors withdrew because of the losses in global stock exchanges, which led to drop in both prices and turnover in local market. Lack of buyers on the Belgrade Stock Exchange led to decrease in prices. Investment and pension funds, as the biggest investors, are still not active enough on the Stock Exchange. Therefore, my opinion is that the return of investors is necessary condition for the growth of value of stocks and turnover on the Belgrade Stock Exchange, since the majority of Serbian blue-chip companies still register good business results.

eKapija: What will bring investors back to the Stock Exchange?

- Since our market is still developing, positive and negative events in Serbia exert significant influence on the trends on the stock exchange, so that the prices of stocks are increased and decreased faster than on the developed stock exchanges. For that reason, I think that the recovery of global economy will result in significant growth of Belgrade Stock Exchange, The investors’ interest also depends on our companies. The interest of the potential investors will be influenced by companies’ business results, transparency and liquidity. Investors find us riskier than we really are because of they lack information. The companies that operate in foreign market usually “inflate profits”, while the situation in our country is different. It sometimes seems that Serbian companies reduce their profits in their financial reports. Another problem lies in the fact that our companies are not ready to get fresh money through additional capitalization. They prefer loans. Macroeconomic stability, stable national currency and Government’s aid are of extreme importance to the recovery of the stock exchange.

eKapija: In what way could Government of Serbia help Belgrade Stock Exchange?

- Like I already said, stable political situation, macroeconomic stability, stable Dinar and good laws are necessary for the return of investors and the recovery of the Stock Exchange. My opinion is that the recent revoking of tax on transfer of absolute rights and tax on capital profit represent good step towards stimulation of development of local capital market.

eKapija: How much will the appearance of public companies on Belgrade Stock Exchange influence the market?

- The Government of Serbia announced that the citizens of Serbia would receive free stocks of “Petroleum Industry of Serbia” and “Galenika” in 2009, and their appearance on the Stock Exchange will lead to certain changes. Although now is not the most favorable time for trading, these stocks will increase interest in Serbian capital market. Led by idea to trade in stocks of the national petroleum company, potential investors will pay attention to the rest of the offer, which should result in growth of turnover.