Baltic bourses: quiet summer of '99 continues

Last week was again a time to enjoy late morning breakfasts and lazy afternoon teas, as minimal activity on the three Baltic bourses produced low trading volumes with relatively stable prices in the most liquid shares. The situation may change next week, however, as investors begin to react to the latest news about the merger of Vilnius and Hermis banks in Lithuania. Vilnius Bank submitted a request to the Bank of Lithuania on Friday in a bid to acquire Hermis Bank, a move which could put the market on a positive track. One possible glitch in the affair is that the international rating agency, Fitch IBCA, appears skeptical that official approval for the merger would be forthcoming in the near future. This, combined with Fitch's negative commentary on Lithuania's economy, may be enough to send the entire market in retreat.

Fitch IBCA's commentary could also have reverberations on the Latvian stock market, as Latvia's economy is not in much — if any — better shape than Lithuania's. A team from Fitch visited Latvia this spring and, considering their commentary on Lithuania, investors might do well to brace themselves for whatever upcoming rating they might assign to Latvia, which should have been announced already at the end of June.

In Estonia the drop in turnover is explained by the end of the euphoria regarding the purchase of Norma by Sweden's Autoliv. Specialists hope the announcement of Hansapank Group's consolidated results on July 28 may liven up the market.

Estonia: Prices hold steady

Turnover volume was low and price changes minimal on the Tallinn Stock Exchange during the past week. The TALSE index climbed 0.31 percent, to 117.60, during a week in which market action was limited to a narrow trading range. Shares in Hansapank were again the leaders in terms of turnover. Hansa's price was up 2.11 percent to 84.50 kroons ($5.51) on a turnover of 21.6 million kroons. Lauri Lind, securities trader at Hansapank, said buying interest in Hansapank was evident from Western investors as Hansa was preparing for the release of its consolidated half-year results. The broker predicted that shares could rise further but top out at 89-90 kroons, as many sellers would step in at these levels.

Trading in Norma shares was relatively thin, with the shares finishing the week unchanged at 35.70. A total of 17.5 million kroons' worth of Norma shares changed hands. "The first major buying pressure is over," Lind said. "Apparently there won't be any aggressive buying before the news is released," Lind said. He said the share price was likely to remain between 35 to 37 kroons. There are no major investors interested in selling Norma at the moment, as there is speculation of a positive effect from the possible sale of Norma to Autoliv, Lind said.

Uhispank closed at 26.60 kroons on Friday, up 1.14 percent from the previous Friday. Turnover was 3 million kroons. On the supplementary list 2 million kroons' worth of shares in Saku Olletehas changed hands. The shares rose 2.80 percent to 55 kroons.

Latvia: Trading marches along

Last week average daily trading volume on the Riga Stock Exchange did not break through 40,000 lats ($66,666); there was a corresponding lack of leadership from stocks providing market direction. The cap-weighted DJRSE slipped 0.19 percent to 83.2 points while the RICI price index gained 3.78 percent to 171.02 points. The difference is due to Liepajas Metalurgs, which is included in just the RICI and jumped almost 20 percent during the week.

Another noticeable mover was Staburadze, which climbed 6.93 percent to 1.08 lats.

The publishing of half-year results is having minimal effect on influencing the movement of companies' share prices. The companies with a chance of gaining are Unibanka (1.01 lats), Latvijas Balzams (0.53 lats) and Riga Shipyard (0.23 lats), as these companies are trading with very low price earnings ratios, between just 2 and 6. Lead investors most likely view earnings prospects for these firms, at least in the near term, as fairly dim, therefore these low P/E's reflect an unwillingness to overpay for lackluster earnings prospects.

A clearer picture on Latvijas Gaze's future should emerge after this week's upcoming shareholder meeting. The decision of the Latvian Privatization Agency to sell a package of state-owned shares on the Riga Stock Exchange is taken as a sign that the agency has already reached agreement with potential buyers — most likely the current shareholders Ruhrgas, Pruessen Elektra, Gazprom and Itera. Shares in Latvijas Gaze climbed 1.20 percent to 1.69 lats.

The situation on the stock market in the near future is likely to be strongly affected by the overall economic picture. If the international ratings agency Fitch IBCA comes out with a rating of unsatisfactory (as it has just described Lithuania's), then there could be a negative reaction on the bourse. As the stock market in Latvia is susceptible to such external shocks, the impact of a negative rating could fall harder on Latvia's national currency, the lat. Already, symptoms of a speculative attack were visible last week when the central bank had to intervene on the currency markets to keep the lat within its trading band. Reaction to any ratings agency report, such as Fitch IBCA, should be muted, however, as their publications are in fact analysis of past trends and data, information which should already be factored into the stock market's current price levels.

Lithuania: VB and Hermis in spotlight

Last week trading picked up on the Lithuanian National Stock Exchange as investors focused on two official list banks — Vilnius Bank and Hermis Bank. The official list Litin index finished the week up 0.27 percent at 507.30 points, while the Litin-10 price index climbed 1.57 percent to 990.46 points. Total turnover on the exchange was just 14.47 million litas ($3.62 million), but share trading on the central market increased 18 percent to 3.83 million litas.

Trading in Vilnius Bank's shares was the most active with 560,000 litas in turnover, with the price rising 0.42 percent to 26.03 litas. Another 348,200 litas of shares were traded through direct deals. The main buyer is Skandinaviska Enskilda Banken, according to Litimpeks Bank broker Vincas Vanagas. After the news broke Friday that Vilnius Bank applied for permission to buy up to 100 percent of Hermis Bank, investor interest in Hermis' shares picked up considerably. Of the 443,800 litas of trading in Hermis shares on the central market, 357,500 litas worth were concluded on Friday. Separately, another 400,500 litas in direct deals were concluded. Hermis' share price jumped 7.48 percent to 84.91 litas. Baltic Securities broker Dmitry Dutov claimed "shares in that bank should break the 100 litas barrier and climb to the 110-120 litas level."

Trading in shares of Rokiskio Suris cheesemaker was also active at 143,300 litas in turnover on the central market. It's share price edged up 0.13 percent to 21.07 litas.

On the current list, investors focused on three shares — Lithuanian Energy, Ragutis brewery and Lifosa fertilizer company. News that the Finnish drinks group Olve intends to buy 49.9 percent of Ragutis sent the brewery's share price skyrocketing 28.19 percent, to 13.46 litas although turnover was a modest 133,500 litas.

Over 257,000 litas in shares in Lithuanian Energy were traded with the share price firmly at the 5.00 litas level. Shares in Lifosa edged up 0.82 percent to 22.12 litas on a turnover of 148,800 litas. Brokers attribute the American company Cargill, purchasing 15 percent of the company, with moving the market. Dutov said trading on Friday reminded brokers of "the good old days," and that the general rise can be expected to continue.

Fitch IBCA's negative commentaries on the Vilnius Bank/Hermis Bank merger and on Lithuania's economic situation, remember, might lead to a slump in share prices, and the good old days might unfortunately be rather short-lived.