Even with the impact of the global financial crisis in Europe widening, so far Bulgaria has been spared the worst of the storm, the only notable exception being the Bulgarian Stock Exchange (BSE). Over the first nine months of 2008, numerous column centimetres across the globe have been dedicated to stock markets suffering setback after setback, but also to them clawing back some of the losses. Not so in Sofia.

As of end-September, the FTSE 100 index in London, the Nikkei 225 in Tokyo and the Dax in Frankfurt have all lost about a quarter of their value compared to end-2007. In the US, the Dow Jones Industrial Average and the Nasdaq lost about a fifth of their value over nine months. Over the same period, BSE’s two top indices – the blue-chip Sofix, which tracks 20 most liquid stocks, and the wider BG40 – have lost 55.2 per cent and 61.7 per cent of their value, respectively.

“Today’s session reinforced the feeling that BSE multiplies the negative moves on the leading capital markets and to a large extent neglects the positive ones,” the manager of Bul Trend Brokerage, Vladimir Malchev, was quoted as saying by website investor.bg on October 1.

While markets across the world were showing signs of rekindled hopes on September 30 that the $700 billion plan to bail out financial institutions, put forward by the US government and defeated in the house of representatives, would still go through in some shape or form, in Sofia the BSE barely took notice when trading resumed the following day.

“As a whole, even if the market regains its optimism, I do not expect a big bounce back here, as compared to what can be seen in Europe and the US,” analyst Tsvetoslav Tsachev from Elana Holding brokerage told investor.bg. “Our eternal problem is the low liquidity. To have any sort of lasting trend, there must be stable buying when stocks bottom out. But all bottoms in recent months have been followed by the same scenario – short-term gains on selected stocks, followed by tightening trade and then a return to the initial position.”

Short-term future?
In September alone, when Wall Street was shaken by the latest wave of shocks – including the bankruptcy filings of Lehman Brothers and Washington Mutual, as well as the government bail-outs of Fannie Mae, Freddy Mac and AIG – the Sofix lost 20.5 per cent and BG40 was down 19.3 per cent. With foreign news determining the sentiment on BSE, predicting how much further the indices will fall is difficult, brokers said.

“Against the backdrop of low liquidity and weak interest from investors, the BSE indices are in free fall, the end of which is extremely difficult to predict,” Investbank broker Vladimir Nechev told Dnevnik daily. “It is a similar situation on world markets, with the notable exception that foreign bourses reacted very positively to the plan drafted by US treasury secretary Henry Paulson and managed to recover part of their losses.”

The proposed rescue package would allow the US treasury to spend $250 billion to buy banks’ risky assets, giving them a much-needed cash infusion. There also would be another $100 billion for use at the US president’s discretion and a final $350 billion subject to congressional approval.

Approval by the US senate and a favourable outcome at the vote in the house of representatives would help world markets recover some some of their losses, but the bearish mood pervading BSE and the apparent absence of any inflows make it less likely to make a sustained comeback in the near future.