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Bulgaria tops frontier stock market league despite politics
July 24, 2013 / 2:11 PM / in 4 years

Bulgaria tops frontier stock market league despite politics

LONDON, July 24 (Reuters) - Bulgarian stocks have survived political troubles to hold onto their position as this year’s top performing frontier market, helped by a relatively upbeat economic outlook compared with other countries in the region.

Like many frontier economies - less developed emerging markets - Bulgaria has its share of political risks.

Bulgarian lawmakers, ministers and journalists were escorted out of parliament early on Wednesday after being trapped inside for about eight hours by anti-corruption protesters outside. The crowd was demanding the resignation of the Socialist-led cabinet, after elections only two months ago.

Yet the European Union’s poorest country boasts a higher growth forecast and lower debt and deficit ratios than others in the region. Its currency peg to the euro is another attraction for international investors.

“In terms of the economic fundamentals, Bulgaria is not in such a bad shape,” said Zsolt Papp, investment strategist at UBP in Zurich.

“The politics are bad in Bulgaria but they’ve been bad for years, there’s no surprises there.”

Bulgaria is the top scorer in the MSCI frontiers index , rising nearly 60 percent in 2013. (

It only has two stocks in that index - diversified company Chimimport and pharmaceutical firm Sopharma.

But the local stock market has risen 30 percent this year, hitting 2-1/2 year highs on Wednesday.

Bulgaria is partly playing catch-up with other emerging markets, which attracted huge capital flows in the past few years, investors say.

“Bulgaria has been lagging as low liquidity and concern about Greece kept foreigners away and market infrastructure still needs some development,” said Alo Kullamaa, fund manager at SEB in Tallinn.

Banks in indebted Greece own a chunk of the Bulgarian banking sector.

However, Kullamaa said retail investor sentiment had recently improved, adding: “Local pension funds are cash-rich and seem to be looking for quality opportunities.”

The European Bank for Reconstruction and Development forecasts Bulgaria’s economy will grow 1 percent this year, slightly below Romania but far outperforming the contraction forecast for Hungary and Slovenia. Bulgaria’s government debt is one of the smallest in the region at 18.5 percent of GDP.

The issue of deleveraging by Western European banks - including those in neighbouring Greece - has been a concern for policymakers in the region in the past few years but has not been as severe as anticipated.

And stocks look undervalued, with price/earnings ratios at around 5 times for the MSCI Bulgaria index, compared with an average of 12 for emerging markets and 6 for emerging Europe, according to Datastream.

Investors are not buying all the country’s assets. Bond prices have been falling in recent weeks, in line with other emerging markets.

The political friction may become a greater deterrent if it persists, analysts said.

“It has been unstable for a few weeks now so there will probably be some downside (for Bulgarian stocks),” said Liza Ermolenko, emerging markets economist at Capital Economics. (Additional reporting by Philip Baillie and Natsuko Waki; Editing by Ruth Pitchford)

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