VILNIUS - A leading investment fund manager told journalists last week that there was little risk of stock market overheats since Lithuanian stocks were still undervalued.
Marijonas Rocius, CEO of Investiciju Portfeliu Valdymas (Investment Portfolio Management), predicted that the local stock market would remain bullish.
"The market has been shaken by some concerns lately, since investors fear that the protracted period of growth might be followed by a sudden drop," he said on Jan. 27. "However, our study has revealed that stock prices on the market have not reached their true value in most cases."
IPM, which manages two investment funds, conducted its market survey in accordance to the stock-price theory GRAPES (growth rate arbitrage and price equilibrium system), which analyzes a stock's theoretical value on the basis of profit margin and the required minimum market return 's which in Lithuania's case is the average yield on 10-year government bonds.
"The analysis has revealed that the stocks quoted on the Vilnius Stock Exchange are undervalued on an average of 122 percent, while stocks on our NSEL 30 Index are undervalued on an average of 105 percent," Rocius said.
The figures presumed that growth on the domestic equity market would continue and reach at least 10 percent 's 15 percent per year during several years, he noted, adding that the growth rate might be much more impressive. "The domestic stock market might surge by another 100 percent in the upcoming five-year period," said Vaidotas Petrauskas, IPM's project manager.
Rocius noted that successful financial results by Lithuanian companies also pointed to a bright outlook for domestic stocks. He said that the bottom-line posted by local businesses last year exceeded 2003 results by a factor of two. Moreover, a number of previously loss-making companies climbed out of the red last year.
Assets under management at IPM currently exceed 44 million litas (12.7 million euros), of which 40.6 million litas are controlled by the NSEL 30 Indekso Fondas (NSEL 30 Index Fund), one of the two funds. NSEL 30 Indekso Fondas, the first Lithuanian open-end fund, invests into 30 VSE-listed companies with top capitalization.
The ZPR Group, of which IPM is a member, has been using the GRAPES methodology for over 20 years.