By Igor Muller and Stephanie Borise
July 4 (Bloomberg) -- Slovenia's stock rally has made the
equity market of the former Yugoslav republic more expensive than
China's. Now investors say it's time to sell.
``We are gradually reducing Slovenian shares because the
market feels hot,'' said Jernej Kozlevcar, who manages about $742
million at Triglav Asset Management in the capital of Ljubljana.
``Recent growth of the market is mainly based on speculation
about consolidation and less on business results.''
The Slovene Stock Exchange Index, known as the SBI20, was
the best-performing equity benchmark in the world last quarter,
jumping 39 percent in dollar terms, according to data compiled by
Bloomberg. It has more than quadrupled since the end of 2002,
paced by Petrol d.d., Slovenia's largest refiner and retailer of
petroleum products, and Intereuropa d.d., a logistics company.
Companies in the index trade at an average of 38.9 times
estimated earnings, more than twice as much as their average for
the past year. The price-earnings ratio is also more than double
that of the Morgan Stanley Capital International Emerging Markets
Index, a global gauge for developing economies. Members of
China's CSI 300 Index trade at 32.9 times earnings.
Kozlevcar's Slovenian Triglav Steber I fund has reduced
Slovenian holdings to 68 percent since starting in 2005 as a
purely national fund.
Slovenia, a country with 2 million people bordering Italy to
the West, joined Europe's single currency in January, almost 16
years after declaring independence from the former Yugoslavia.
Its $35 billion economy, about a fifth the size of Portugal's,
expanded 7.2 percent in the first quarter, the fastest pace since
1999.
`Expensive and Illiquid'
The equity market has been fueled by money from government-
owned pension funds, which hold most of their assets in domestic
stocks. Local mutual funds also bought the stocks as Slovenians'
savings rose along with the economy. Foreign investors hold about
5 percent of the shares.
``The market looks interesting, yet it is way too expensive
and illiquid,'' said Peter Bodis, who manages $1.3 billion at
Pioneer Investments in Vienna.
Slovenia's expansion and stable government helped pave the
way for membership in the North Atlantic Treaty Organization and
the European Union in 2004. That made it a relatively safe place
for foreign businesses looking to set up local offices in
emerging economies.
Phones, Oil
Not everyone is predicting the rally's end. Merger and
acquisition speculation will continue to support shares,
according to Sasa Mohorko, a stock broker at Slovenian brokerage
and mutual fund Publikum d.d.
``I don't think the market is risky,'' Mohorko said. ``The
second half of the year will be bullish as well.''
Petrol has jumped amid speculation the company may be taken
over by Russia's OAO Lukoil, said Piotr Dzieciolowski, an analyst
at UniCredit SpA's CA-IB unit in London. The two companies
started an alliance last August.
The government says it plans to sell 39 percent of Telekom
Slovenije d.d. next month. That has helped increase the share
price of the national phone company by 55 percent in 2007.
Intereuropa shares doubled this year on anticipation that the
state will sell off its holding. Private ownership would make it
easier for foreign businesses to take over companies in Slovenia.
Even so, none of the asset sales promised by Prime Minister
Janez Jansa when he took power in December 2004 has so far come
to pass.
Sale Blocked
The government in December blocked the sale of a
controlling stake in Nova Ljubljanska Banka, Slovenia's largest
lender, to KBC Group NV of Belgium, arguing it could endanger
the country's ability to satisfy EU requirements for banking
stability.
Francois Lecavalier, the top official for Slovenia at the
London-based European Bank for Reconstruction and Development,
has said that not letting foreign capital into the country could
stall national economic success.
``We're not adding any more Slovenian shares,'' said Uros
Svete, director of asset management at Kapitalska Druzba, the
government-controlled pension fund in Ljubljana. He said the
fund is investing in shares in Croatia, Serbia, Macedonia and
Romania and in the foreign exchange market to seek better
returns for retirees.
Tim Drinkall, who manages about $260 million for Gustavus
Capital AB's Gustavia Balkans fund in Stockholm, said he's being
more selective with his Slovenian holdings. In May, he sold
shares in Mercator Poslovni Sistemi d.d., southeastern Europe's
biggest retailer, after they more than doubled from early 2006.
The stock trades at 39 times estimated earnings.
Mercator ``had a great run but we didn't see much room for
upside,'' Drinkall said.
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