(C) External influence over the Bulgarian capital market

Today’s session (16 January 2008) was a classic example of foreign markets’ influence on the Bulgarian capital market’s mood. The serious declines oversees have touched Europe and Asia. One of the probable channels of influence is the liquidity trap caused by the write-offs of the large US and European banks, which have lately erased off their balance sheets more than USD 60 bn of assets.

The immediate consequence of these write-offs is a net loss for the financial companies, followed by further assets and equity contraction and severe lending limitations, which directly, negatively affects the money supply.

We observed a similar influence today, when the investors pressed by short liquidity were forced to sell certain positions. The other chief factor, which seized the investors and the traders today, was the fear, which reigns over the markets during crisis.