(B) SeeNews Blitz Interview

1. Was the Bulgarian stock market forming a bubble prior to the start of the correction?

Having in mind the average continuous annualized return of SOFIX ranging between 28% (last seven years) to 42% (last five years), we were heading way above the mean. Additionally, considering the unhealthy price multiples the majority of stocks were forming, I dare say the market slid into a deserved correction.

2. If you do think share prices are too high or at least part of them are too high, is this situation posing any threat to the market? What were the reasons for this situation to emerge?

Our capital market is pretty much underdeveloped, few of the investors have decent training and skills, fortunately there are certain intermediaries with excellent research and well-trained staff, unfortunately some of our colleagues are typically trading and speculation oriented, which drives certain stocks way above their fundamental value. The average investor is not aware of the companies’ fundamental valuation, and could not understand what’s going wrong out there at the exchange. Having in mind this frame, any bubble is an immediate threat to the psychology of the average Joe, thence the market behavior and the market as a whole.

3. How do you expect the sharp rise in share prices so far to affect mutual funds and foreign and local investors? How do you expect them to react to the correction move which started recently, will they become more cautious in the future?

Most of the mutual funds and institutional investors enter our market after a strong fundamental analysis. Their positions, if long-term would not be susceptible to market fluctuations. On the other side any higher risk, short-term game could most probably be punished by the current high volatility.

I personally believe that every correction is a decent teacher; every bull market is an excellent capital market professor.

4. What percentage growth of the two main stock indices do you expect for 2007 and 2008, year-on-year? Will growth slow down compared to 2006 and why?

My expectations stick with the last five years mean.

5. How could the high oversubscription of Trace Group Hold’s IPO could be interpreted, what is it telling us about the market? Can we expect such oversubscriptions in the future?

The off-the-floor IPOs are not practically regulated by the FSC (Financial Supervision Committee) with regard to the subscription terms and conditions. This places the investment intermediaries, the mutual funds and the small investors in a futile mathematical or better mantic dilemma: “How many times would the market oversubscribe”

The unprecedented interest towards Trace was mainly due to the immaturity of the market participants, which was expressed in guessing the subscription coefficient, rather than carefully examining the fundamentals of the company. It is clear for all of the market participants, including the FSC that ready cash amounting at 62% of the GDP of Bulgaria, or 64% of the total bank assets is not available.

I sincerely hope that this ludicrous result would be beneficial for all the market, by managing to overcome its speculative moods and place the strong financial fundamentals of the issuer as a cornerstone to its investment decision.

Additionally, I expect that the intermediary at the next IPO will require a margin deposit and will allocate the shares’ subscription based on the available highly liquid assets and the purchasing power of the participants.