In the beginning of the ongoing correction we were observing a whole lot of deviations from the intrinsic values of the majority of the traded companies, if not the whole market. Plenty of positions were traded at triple P/Es, we experienced two-folds in a quarter of negative income companies…
I believe that the outflow which brought SOFIX to 17.8x P/E from 40x P/E in late 2007 is the sobering cold shower. Currently, the price multiples are returning to sensible levels, but we still witness strong deviations in the illiquid positions.
Searching for fundamental support in the macro-data we could hardly take hope. Driven by negative news overseas for liquidity squeeze in the financial sector and recession in the economy, the expectations are more of a smooth advance. On the other side most of the real GDP forecasts for the country range in between 4.5% to 5.5%. Furthermore, the expectation for outflow of the developed economies growth towards the emerging markets strengthens the expectations of the capital markets trend reversion.
Strong evidence of the mood turnaround will be any possibly good 2008 reports as well as the first IPOs results. After such a strong correction, all the market participants will be extremely cautious in their valuations of the public and to be public companies.
7 comments:
Dear Valentina,
How could we justify any investments in the developing markets, once and analyst like you suggests flat 08H1?
Yours,
Mat Smirnoff
Buy whenever negative fluctuations in price allow for fall in prices below fair value and hold. No good times for speculators though...
Hi Valentina,
Couldn't agree more with this message. Unfortunately, both for Romania (my home country as remember) and Bulgaria, investors got used to quick and large gains and cannot believe that this time of easy money is over. As you observed, the fundamentals demand a sober view and valuation should give place to emotions in the market. Unfortunately some are already learning this the hard way...
Keep on going! BTW are you still in Bulgaria? Cristi
One thing keeps on surprising me, how could you ever manage to reach the FAIR VALUE!!! With a r=20 and g=10 for me everything is overpriced in Bulgaria!
Mat
Hi Cristi, thank you for stopping by. Yes, I am still in Bulgaria...
Mat, multiples in China are also high, and many investment analysts still recommend investments in China. What makes the markets in Bulgaria and Romania different from China, so that we can claim that companies are overpriced?
Fundamentals, ANONYMOUS. Our fundamentals and prospects are not as rosy as those in China (big market, growing amazingly) for example.
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