(C) Which way are the markets heading

Indexes are weakening amid the severe cash diet prescribed by the investors. A major factor that forces the investors out of the market is the global liquidity squeeze. The matter exacerbates even further in Bulgaria which in its political and economic weakness has diverted highly liquid EU finding and direct and portfolio investments. Therefore, I firmly believe that during the first half of 2009 the Bulgarian market will be still on a cash diet.

A major point are the reports of the public companies and the price multiples they trade at. The irrational optimism that reigned on the market during 2007 is being slowly chilled, so slowly, that the P/E ratio of our leading index SOFIX remains above 12.5 which is 1-3 points higher that the markets in the region. This either stipulates higher than expected growth expectations or simply overvalued investments due to illiquid issues or subjective irrationality.

After every collapse there would definitely be a rebound, but only as a result of strong macroeconomic and fundamental factors. My bravest expectations see the middle of 2009 as the earliest fundamental support for the capital markets. In the meantime we should take a closer look at the outsourcing wave beneficiaries and the strong exporters that are listed on the BSE.