(C) Macroeconomic influence on the Bulgarian stock exchange performance

The macro and the industry analysis are the foundation of the valuation of every company. When applying bottom-up analysis the macro parameters should be reflected in the intrinsic values thence in the prices of the public companies.

Following the main indicators: GDP per capita (2002 – 2006 we have continuous annual growth of more than 10%), money aggregate M3 (2002 – 2006 continuous annual growth of more than 20% and YoY 09/2007 exceeding 25%), foreign direct investment (06/2005 – 06/2007 continuous annual growth of some 37%), all of which should have accelerated the growth of the capital market.

Currently, the macro forecasts are focusing on the enormous current account deficit of the balance of payments, which however, is being almost completely compensated by the investments and should not be of a big concern. On the other side, the expectations of a significant decline in the foreign direct investments could influence negatively the macro-stability of the country.

Additionally, the higher inflation could wield negative influence on the capital market by retarding the production and the business earnings, plus driving lower-end investors’ liquidity out of the market. Conversely, the forecasts for stable 6% real GDP growth for 2008-2009 would definitely be in support of the market.

In my opinion a speculative attack against the currency board, with a central bank being unable to intervene at high enough levels to support the overvalued lev (BGN), could trigger un-pegging of the fixed rate and depreciation of the national currency, thus posing an enormous threat on the Bulgarian capital market investors.