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INDEX CONTACT COMPANY STRATEGY INVESTMENT STRATEGY COMPANY PERFORMANCE MARKET INFORMATION CROATIA BOSNIA AND HERZEGOVINA SERBIA MACEDONIA BULGARIA UKRAINE STOCK EXCHANGE MARKET PERFORMANCE LINKS TO REGIONAL STOCK EXCHANGES


CONTACT Qwest Investments Limited Arch. Makariou III, 146 Alpha House, 4th floor P.C. 3021, Limassol, Cyprus Tel.:

+357 99 237 262

Fax.:

+357 25 735 455

www.qwest-investments.com

COMPANY STRATEGY Qwest Investments Limited is situated in Cyprus with primary activity investing in securities. Our distinctive investment strategy results in the balanced portfolio mix of strategic, portfolio value and portfolio growth investments regionally positioned mainly in the South-Eastern Europe. We pursue a goal of maximizing returns to investors while minimizing risks. By following the geographical and investment type of portfolio mix our goal is to achieve yearly above 15 percent return on invested capital.


INVESTMENT STRATEGY Our strategy is to invest in three main groups of capital markets: -

Primary capital markets: Macedonia, Serbia, BIH and Croatia, Secondary capital markets: Bulgaria and Romania,

-

Tertiary capital markets: Ukraine and other Emerging Markets.

Secondary Markets Primary Markets Tertiary Markets

The reasons for mainly investing in primary capital markets are as follows: -

-

With our experience, presence and good relationship with local business partners in the aforementioned markets our company has become one of the leading investors in the region. Primary capital markets are still in the phase of development, therefore, they offer many investment opportunities. We expect to obtain higher yields than in the Western European capital markets.

Portfolio mix permises: -

Portfolio mix of strategic and two level portfolio investments, Utilization of short-term to long-term market potential, Majority of assets allocated in stable, strategic investments.


Picture 2: Investment type Portfolio Mix

Strategic - 59,58%

Portfolio Growth & Momentum - 5,12%

Portfolio Value - 35,30%

Notes: 1. 2. 3.

Strategic investments are stable investments that we would like to hold in the long-term and increase our shares in the companies. Portfolio investments type »Value« are investments from which we expect short to medium-term and relatively stable market yield. Portfolio investment type »Growth and Momentum« are investments earmarked for the utilization of the short-term market potential.

Advantages: -

Higher flexibility due to liberal investment policy and legal framework,

-

Diversified portfolio for greater risk reduction,

-

Adequate liquidity level due to three level portfolio investment allocations.

Risks: -

Market volatility: capital markets respond strongly to all investor’s publications, changes in legislation, economics and politics. Furthermore, different parts of the market respond differently to these variables.

-

Liquidity risk: lower liquidity in developing capital markets can lead to liquidity difficulties of an investor. However, the liquidity risk is minimized by appropriate investing tech niques.

-

Exchange rate risk: securities and bank deposits are denominated in the local currency due to the geographical dispersion of investments. Therefore, foreign capital markets, especially developing ones, can expose the investor to the exchange rate risk.

-

External political, economical and regional risk: developing capital markets are respond ing more rapidly to the external political, economical and regional instabilities, sending disturbances to the market.


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COMPANY PERFORMANCE Picture 3: The Book Value of the Share since the Year 2005

5,00

3,75

2,50

1,25

0

Picture 4: The Book Value of the Share in the Year 2007

5,00

3,75

2,50

1,25

0


Picture 5: Indices Comparison since the Year 2005 400

320

240

160

Publikum Ex-Yu Index

Publikum Balkan Index

MSCI EM Eastern Europe

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80

Qwest

Notes: 1.

Publikum Ex-Yu Index is weighted index of average share prices of 45 leading companies from the former Yugoslavian countries. Weights are as follows: 22,5% for Slovenia, Croatia, Bosnia and Herzegovina and Serbia and 10% for Macedonia.

2.

Publikum Balkan Index is weighted index of average prices of 80 leading companies from Western Balkan region. Weights are as follows: 15% for Slovenia, Croatia, Bosnia and Herzegovina, Serbia and Turkey, 4% for Macedonia and 7% for Bulgaria, Romania and Greece.

3.

MSCI EM Eastern Europe Index shows the exposure to companies in emerging markets such as Czech Republic, Hungary, Poland and Russia.


MARKET INFORMATION MARKET DESCRIPTION Our main investment targets are the following markets: Croatia, Serbia, Macedonia, Bosnia and Herzegovina (Federation of BIH and Republic of Srpska), Bulgaria and Ukraine. These markets are currently experiencing some political tensions, while the macroeconomic indicators continue to be favorable. The markets continue to show great potential for further expansion and European convergence. Therefore, the whole region remains an important investment target for the investors. Table 1: Regional Indicators Real GDP Growth (%)

2005

2006

2007e

2008f

2009f

Croatia

4,3

4,8

5,7

4,6

4,3

Bosnia and Herzegovina

6,1

6,2

6,2

6,5

6,5

Serbia

6,2

5,7

7,2

6,8

6,5

Macedonia

4,1

3,7

5,0

6,0

6,2

Bulgaria

6,2

6,1

5,6

5,8

5,3

Ukraine

2,7

7,3

7,3

6,5

5,0

2005

2006

2007e

2008f

2009f

Croatia

3,3

3,2

2,6

2,6

2,5

Bosnia and Herzegovina

3,8

7,4

3,2

3,0

3,2

17,7

6,6

7,5

5,0

5,0

Macedonia

0,0

2,9

2,2

2,8

2,6

Bulgaria

6,0

7,4

7,6

6,3

3,5

Ukraine

13,5

9,1

12,8

13,0

8,5

2005

2006

2007e

2008f

2009f

-6,7

-7,6

-9,2

-8,6

-8,0

-21,6

-9,93

-12,99

-10,02

-9,23

Serbia

-8,4

-12,3

-14,1

-14,7

-12,2

Macedonia

-1,4

-0,89

1,13

-0,13

-1,09

Bulgaria

-12,0

-15,7

-19,4

-19,4

-17,3

Ukraine

2,9

-1,5

-2,5

-3,5

-3,6

Inflation, annual average

Serbia

Current Account Balance (% GDP) Croatia Bosnia and Herzegovina

Source: BMI: Emerging Europe Monitor – South East Europe; March 2008; Volume 15; Issue 3.


Table 2: Main Financial Indicators P/B

P/E

P/S

Croatia

3,13

52,38

2,91

FBIH

1,51

117,90

12,84

Republic of Srpska

0,98

82,48

14,59

Serbia

2,57

211,76

5,85

Macedonia

1,66

404,30

2,01

Source: Own calculations.


COUNTRY DESCRIPTION AND MACROECONOMIC INDICATORS1 CROATIA COUNTRY DESCRIPTION

Geography note: controls most land routes from Western Europe to Aegean Sea and Turkish Straits; the vast majority of Adriatic Sea islands lie off the coast of Croatia - some 1,200 islands, islets, ridges, and rocks Area: 56,542 sq km Population: 4,493,312 (July 2007 est.) Capital: Zagreb Currency (code): Kuna (HRK) GDP - composition by sector: agriculture: industry: services:

7.2% 32% 60.7% (2007 est.)

Agriculture products: wheat, corn, sugar beets, sunflower seed, barley, alfalfa, clover, olives, citrus, grapes, soybeans, potatoes; livestock, dairy products Industries: chemicals and plastics, machine tools, fabricated metal, electronics, pig iron and rolled steel products, aluminum, paper, wood products, construction materials, textiles, shipbuilding, petroleum and petroleum refining, food and beverages, tourism Market value of publicly traded shares: $29.01 billion (2006) Macroeconomic Indicators The Croatian Prime Minister Ivo Sanader has put together a stable coalition, which should be capable of surviving through to the next scheduled parliamentary elections in 2012. It is expected that the Croatian government policy over the medium term is expected to continue targeting EU membership. The political elite in Zagreb generally has a consensus toward EU membership and this is already reflected in the country’s relatively high political risk ratings. Sources: 1. 2. 3.

https://www.cia.gov/library/publications/the-world-factbook/index.htm BMI: Emerging Europe Monitor – South East Europe; March 2008; Volume 15; Issue 3. Dun &Bradstreet: International Risk and Payment Review, February 2008.


In that line, economic policy will remain focused on achieving EU membership criteria. We expect that reforms to restructure the large public administration, address corruption, cut subsidies and harmonize judicial policy will dominate the new government’s agenda going forward. Real GDP growth has slowed modestly in the year 2007. However, household consumption is holding up well despite the Croatian central bank’s recent tightening of credit controls, and investment demand has remained relatively strong. The bulk of the slowdown in overall growth resulted from slightly faster import growth and more modest export expansion. At the end of the year 2007 inflation has ticked up to a six-year high, driven largely by clothes and footwear prices. Contrary to most of the South Eastern European countries food prices grew only moderately. This suggests that while global prices will keep inflation afloat in the short term, inflation pressures in the economy appear to be structural. In the past few months the Croatian kuna is surging ahead, with the unit hitting the six months high of 7,2201 HRK/EUR. What is notable is that this was at the start of the year, rather in the key summer tourist season. The Croatian National Bank has been unusually slow off the mark in countering kuna appreciation, but it is not expected that it will tolerate significant strength in the unit just yet. The pressure to permit further local currency appreciation is certainly growing. The government hopes to bring the budget deficit into balance by 2010. This optimism is based on the country’s continued strong economic performance and the Finance Minister Ivan Šuker’s expectations that the 2007 shortfall has been contained at around 2,3% of GDP. However, the expectations are quite high, given the amount of reform needed to bring the economy and public administration up to EU standards. 2006

2007e

2008f

2009f

Nominal GDP (bn HRK)

250,6

291,6

299,2

315,6

GDP per capita (in USD)

9.466

10.887

11.322

13.416

Real GDP growth (%)

4,8

5,7

4,6

4,3

Industrial production index (%)

4,6

5,6

7,1

5,8

-3,0

-2,8

-2,7

-2,9

3,2

2,6

2,6

2,5

Exchange rate HRK/EUR

7,35

7,33

7,27

7,20

Exchange rate HRK/USD

5,56

4,99

5,50

5,55

Imports (bn USD)

21,12

25,73

28,30

31,13

Exports (bn USD)

10,61

12,32

13,55

14,90

-10,51

-13,41

-14,76

-16,23

-7,64

-9,25

-8,65

-7,99

Budget Balance (% of GDP) Inflation (%)

Trade balance (bn USD) Current Account (% of GDP)


BOSNIA AND HERZEGOVINA COUNTRY DESCRIPTION

Geography note: within Bosnia and Herzegovina's recognized borders, the country is divided into a joint Bosniak/Croat Federation (about 51% of the territory) and the Bosnian Serb-led Republika Srpska or RS (about 49% of the territory); the region called Herzegovina is contiguous to Croatia and Montenegro, and traditionally has been settled by an ethnic Croat majority in the west and an ethnic Serb majority in the east Area: 51,129 sq km Population: 4,552,198 (July 2007 est.) Capital: Sarajevo Currency (code): Konvertibilna marka (convertible mark) (BAM) GDP - composition by sector: agriculture: 10.2% industry: 23.9% services: 66% (2006 est.) Agriculture products: wheat, corn, fruits, vegetables; livestock Industries: steel, coal, iron ore, lead, zinc, manganese, bauxite, vehicle assembly, textiles, tobacco products, wooden furniture, tank and aircraft assembly, domestic appliances, oil refining Market value of publicly traded shares: $NA Macroeconomic Indicators It is widely believed that the surprise breakthrough on police reforms by Bosnia’s ethnic political groups in December 2007, and the signing of the Stabilization and Association Agreement (SAA) with the EU, will be supportive of generally positive fiscal dynamics over the medium term. Providing a crucial policy anchor, the initiation of formal ties with the EU will likely see increased progress on structural and much-needed institutional reforms. With nominal GDP for 2007 estimated at the USD 15,4 bn, Bosnia’s national output is one of the lowest in the region.


It is believed that owing to the ongoing convergence towards EU living standards, GDP per capita will expand 38,8% from an estimated USD 3.997, 3 in 2007 to 5.528, 10 by 2012. Over the medium term the economic growth will remain robust, staying above 6,0% in the 4-year forecast period. While Bosnia’s central government budget is forecast to post a surplus of BAM 40,8 mn (EUR 20,8 mn) in 2008, it is expected the fiscal balance to slip into slight deficit of 0,1% of GDP in 2009. This is reflected in the ongoing lack of central government control of Bosnia’s public finances, with independent entity budgets continuing to present key to Bosnia’s fiscal environment. We expect the positive development in the political sphere to ensure the continuation of Bosnia’s privatization program, which could significantly prop up the Federation government’s proceeds this year, justifying the higher proposed spending commitments. This is set to include the sale of 88% in the entity’s aluminium smelter Aluminij Mostar. BH Telecom is also earmarked for privatization of between 51%-67% of the Federation government’s holding this year, with the combined sale of both assets estimated to raise up to BAM 4,6 bn (EUR 2,3 bn). Further privatizations could include Bosnia’s largest construction company Hidrogradnja Sarajevo, and energy firm Energoinvest Sarajevo.

2006

2007e

2008f

2009f

Nominal GDP (bn BAM)

19,1

21,4

23,3

25,5

GDP per capita (in USD)

2.994

3.997

4.386

4.453

Real GDP growth (%)

6,2

6,2

6,5

6,5

Budget Balance (% of GDP)

3,0

1,2

0,2

-0,1

Inflation (%)

7,4

3,2

3,0

3,2

Exchange rate BAM/EUR

1,96

1,96

1,96

1,96

Exchange rate BAM/USD

1,45

1,32

1,42

1,52

Imports (bn USD)

7,64

9,47

10,35

10,62

Exports (bn USD)

3,37

4,04

4,87

5,45

Trade balance (bn USD)

-4,27

-5,42

-5,48

-5,17

Current Account (% of GDP)

-9,93

-12,99

-10,02

-9,23


SERBIA COUNTRY DESCRIPTION

Geography note: controls one of the major land routes from Western Europe to Turkey and the Near East Area: 88,361 sq km Population: 10,150,265 (July 2007 est.) Capital: Belgrade Currency (code): Serbian Dinar (RSD) GDP - composition by sector: agriculture: industry: services:

12.3% 24.2% 63.5% (2007 est.)

Agriculture products: wheat, maize, sugar beets, sunflower, beef, pork, milk Industries: sugar, agricultural machinery, electrical and communication equipment, paper and pulp, lead, transportation equipment Market value of publicly traded shares: $5.409 billion (2005) Macroeconomic Indicators A deep rift is forming between the recently re-elected President Boris Tadić and Prime Minister Vojislav Koštunica’s fragile coalition government over the independence of the breakaway province of Kosovo and the development of closer ties between Serbia and the EU. We anticipate that considerable volatility will remain over the next few months due to the declaration of Kosovo independence, which has taken place on 17 February 2008. The Kosovo independence has led to the massive demonstrations in Serbia. Furthermore, Serbia has started to dispatch the ambassadors of the countries that have already recognized Kosovo as an independent country. We believe that the political disagreement over Kosovo independence is likely to lead to heightened political tensions between different branches of the political elite in Serbia. We caution that Koštunica may try to bring down the fragile coalition government, which would lead to early parliamentary elections, and be highly destabilizing for developments in Serbia and Kosovo.


Over the medium term, despite the current instability, we still believe that the re-election of Tadić will be the best option in terms of providing support for key Serbian economic and political reforms. It is anticipated that Serbia’s external debt pile will begin falling in percentage of GDP terms in 2008 following an only slight increase to 63,4% of GDP at the end of 2007, up from 63,1% at the end of 2006. It is also expected that the government’s efforts to reduce its external debt stock will continue, which will be supported by positive macroeconomic indicators, with economic growth remaining robust. This, in turn, will help to bolster the country’s fiscal dynamics and by extension, the government’s ability to repay the fiscal debt. In the first half of the year 2008 the Serbian Monetary Policy Committee will hike its policy rate to 10,50%, with monetary tightening continuing through to the end of the year 2008. Further tightening is required due to upside inflationary pressures. In addition, the government’s 2008 budget has planned USD 2,7 bn deficit, against the advice of the National Bank of Serbia, which causes many concerns.

2006

2007e

2008f

2009f

Nominal GDP (bn RSD)

2.085

2.380

2.704

3.064

GDP per capita (in USD)

2.936

3.745

4.576

5.554

Real GDP growth (%)

5,7

7,2

6,8

6,5

Budget Balance (% of GDP)

1,4

-0,6

-0,3

-0,3

Inflation (%)

6,6

7,5

5,0

5,0

Exchange rate BAM/EUR

79,00

85,00

76,00

74,86

Exchange rate BAM/USD

59,98

58,22

52,05

51,27

Imports (bn USD)

-12,72

-17,17

-21,80

-23,98

Exports (bn USD)

6,49

9,08

11,71

13,47

-6,23

-8,09

-10,09

-10,51

-12,32

-14,07

-14,67

-12,24

Trade balance (bn USD) Current Account (% of GDP)


MACEDONIA COUNTRY DESCRIPTION

Geography note: landlocked; major transportation corridor from Western and Central Europe to Aegean Sea and Southern Europe to Western Europe Area: 25,333 km2 Population: 2,055,915 (July 2007 est.) Capital: Skopje Currency (code): Macedonian denar (MKD) GDP - composition by sector: agriculture: industry: services:

12.1% 28.6% 59.3% (2007 est.)

Agriculture products: grapes, wine, tobacco, vegetables; milk, eggs Industries: food processing, beverages, textiles, chemicals, iron, steel, cement, energy, pharmaceuticals Market value of publicly traded shares: $646 million (2005) Macroeconomic indicators Economic performance has been strong in recent years, with real GDP accelerated to an unexpectedly high 7,0% year on year in Q1 2007, reflecting mainly growth in the metals and steel segment. Despite the effects of credit market turbulence elsewhere in the world, it is expected the construction activity and investment in capital equipment to have supported growth during the second half of the year. The government’s budget plan for 2008 should safeguard macroeconomic stability. Despite ambitious plan to cut personal and corporate income taxes, to make selective cuts in VAT, to increase spending on pensions, public investment in roads and education, and government wages, the budget should deliver the deficit target of 1,5% of GDP, which is essential for macroeconomic stability and supporting sustainable real GDP growth. Macedonia is also making progress with structural reforms. From January 2008, healthcare contributions by part-time workers have fallen substantially, as they are calculated on hourly basis.


The IMF has encouraged the government to link pension healthcare and unemployment contributions for low wage workers to the wage they actually earn, rather than the average wage in the economy. Such reforms should encourage firms and workers to register in the formal economy. They should also lead to a substantial reduction in unemployment, which is currently around one-third of the labor force. In addition, efforts are being made to address the problems in the electricity sector, with large electricity users paying market prices from January 2008, removing the need for a budget subsidy to Macedonian Electricity Transmission System Operator (AD MEPSO). The government has launched a publicity campaign aimed at attracting more FDI into the country, including streamlining public administration towards this aim. The World Bank ranked Macedonia fourth globally in terms of progress in reforming the business environment in 2006-2007. The government and central bank have submitted their revised central bank law to the ECB and to the European Commission for review, to make sure that it is aligned with the “aquis communautaire”. The new law strengthens the financial soundness of the National Bank of the Republic of Macedonia, and reaffirms the government’s commitment to safeguarding the bank’s independence.

2006

2007e

2008f

2009f

Nominal GDP (bn MKD)

308,8

333,5

361,8

382,8

GDP per capita (in USD)

3.102

3.762

4.052

4.078

3,7

5,7

6,0

6,2

-0,6

0,9

0,9

0,8

2,9

2,2

2,8

2,6

Exchange rate BAM/EUR

61,33

61,50

61,50

61,50

Exchange rate BAM/USD

46,48

42,12

44,57

47,67

Imports (bn USD)

3,68

4,76

5,80

6,73

Exports (bn USD)

2,40

3,36

4,13

4,83

Trade balance (bn USD)

-1,28

-1,40

-1,67

-1,90

Current Account (% of GDP)

-0,89

1,13

-0,13

-1,09

Real GDP growth (%) Budget Balance (% of GDP) Inflation (%)


BULGARIA COUNTRY DESCRIPTION

Geography note: strategic location near Turkish Straits; controls key land routes from Europe to Middle East and Asia Area: 110,910 sq km Population: 7,322,858 (July 2007 est.) Capital: Sofia Currency (code): Lev (BGL) GDP - composition by sector: agriculture: industry: services:

8.1% 31.3% 60.7% (2007 est.)

Agriculture products: vegetables, fruits, tobacco, wine, wheat, barley, sunflowers, sugar beets; livestock Macroeconomic Indicators Real GDP increased by 4,5% y-o-y in Q3 2007, slowing from 6,2% in the previous quarter, bringing the year to date rate of expansion to 5,7% y-o-y. The full-year economic growth is estimated at 5,6% in 2007. Although economic growth is likely to moderate somewhat going forward, it will probably remain robust I the next five years. The main drivers of economic growth will remain private expenditure and investment, which have benefited from the development of the domestic banking sector and expansion in credit availability. This in turn has facilitated the growth in long-term loans and consumer credit. The surge in food prices following last summer’s drought will keep inflationary pressures elevated during the first half of 2008. Although food price inflation is now showing signs of slowing, and energy prices have remained relatively stable during the Q2 2007, prices of the transport and restaurant and hotel components of the consumption basket still show signs of rising. The reason is that fuel is a significant input for transport industries while both food and fuel are major constituent inputs for the hospitality sector. Therefore, as a result of rising factor costs, firms respond by gradually adjusting their own prices. However, since re-evaluating costs and adjusting prices requires time and resources, there is an inherent lag in producer price inflation.


As such, although food and fuel prices will moderate, the transport and hotels and restaurants components of the price basket will likely see continued price inflation over the short term, before moderating in line with food and energy price inflation. The unemployment rate rose to 6,9% in December from 6,6% in November 2007, despite falling significantly from 9,7% at the beginning of the 2007. The monthly increase is largely attributable to seasonal factors, such as slowdown in industrial production and construction projects. Over the medium term unemployment will continue to fall on the back of robust economic growth and expansion of domestic industry, which will sustain demand for labor going forward. Bulgaria has satisfied two of the tree Maastricht criteria (public debt below 60% of GDP and a fiscal deficit of no more than 3% of GDP). The last criteria requires maintaining inflation at no more than 1,5 percentage points higher than the three lowest inflation member states of the EU. Therefore, the ECB is likely to postpone Bulgaria’s entry to the ERM-II system.

2006

2007e

2008f

2009f

49,1

55,4

62,8

70,8

GDP per capita (USD)

4.091

4.649

6.032

6.448

Real GDP growth (%)

6,1

5,6

5,8

5,3

Budget Balance (% of GDP)

3,5

3,3

2,5

1,4

Inflation (%)

7,4

7,6

6,3

3,5

Exchange rate BAM/EUR

1,96

1,96

1,96

1,96

Exchange rate BAM/USD

1,48

1,34

1,42

1,52

Imports (bn USD)

17,60

20,60

23,50

25,30

Exports (bn USD)

12,00

13,20

15,00

16,40

Trade balance (bn USD)

-5,60

-7,40

-8,50

-8,90

-15,70

-19,40

19,40

-17,30

Nominal GDP (bn BGN)

Current Account (% of GDP)


UKRAINE COUNTRY DESCRIPTION

Geography note: strategic position at the crossroads between Europe and Asia; second largest country in Europe Area: 603,700 sq km Population: 46,299,862 (July 2007 est.) Capital: Kiev Currency (code): Hryvnia (UAH) GDP - composition by sector: agriculture: industry: services:

9.2% 32.6% 58.2% (2007 est.)

Agriculture products: grain, sugar beets, sunflower seeds, vegetables; beef, milk Industries: coal, electric power, ferrous and nonferrous metals, machinery and transport equipment, chemicals, food processing (especially sugar) Market value of publicly traded shares: $42.87 billion (2006) Macroeconomic Indicators Ukraine has a new government: on 18 December 2007, 226 out of 450 MPs narrowly elected Yulia Tymoshenko, an ally of pro-Western President Viktor Yushchenko, as the new prime minister. Tymoshenko’s election came more than two-and-half months after an early parliamentary election on 30 September and exactly one week after the legislature had initially rejected her candidacy: after obtaining of 225 MPs, she had than fallen one vote short of the required absolute majority. Given the fragile nature of Tymoshenko’s coalition and the circumstances of her election, it is widely expected the government instability and policy gridlock to continue. Tellingly, her loose and populist fiscal policy has already provoked criticism from a presidential aide, as it will add the problem of persistent inflationary pressures. Part of the revision of the 2008 budget was to raise the deficit projection and to allocate USD 4 bn to compensate the population for savings eroded by hyperinflation during the collapse of communism at the beginning of the 1990s.


During 2007 real GDP grew by 7,3%; retail sales were up 28,8%, construction output 15,8% and industrial output 10,2%. Inadequate macroeconomic policies (reflected in an annual average inflation rate of 12,8%), a lack of economic reform and less favorable external conditions will make it difficult to maintain such strong growth going forward. In an agreement with the EU, Ukraine has promised to lower export duties on a wide range of products. The EU particularly insisted on reductions of duties on metals exports, which it considers to be a subsidy for domestic metallurgy plants. Furthermore, Ukraine has also been accepted to the WTO.

2006

2007e

2008f

2009f

Real GDP Growth (%)

7,3

7,3

6,5

5,0

Inflation (%)

9,1

12,8

10,5

8,5

-1,3

-2,5

-2,1

-2,2

6,8

6,6

6,5

6,6

-1,5

-3,5

-3,7

-3,8

Government Balance (% of GDP) Unemployment (%) Current Account Balance (% of GDP)


STOCK EXCHANGE MARKET PERFORMANCE ZAGREB STOCK EXCHANGE In the year 2005, the Zagreb Stock Exchange started to develop. The market turnover increased by 44% comparing to the previous year, whereas the market capitalization accelerated by 33,4%. The main driving force of the Zagreb Stock Exchange index growth represented the most liquid securities that compose the aforementioned index. In the year 2006, the Zagreb Stock Exchange was developing further. The total market turnover supplementary increased by 121% comparing to the previous year. Two main occurrences appeared in the year 2006: (1) public acquisition of the biggest pharmaceutical company Pliva and (2) initial public offering (IPO) of shares of the biggest Croatian oil company INA. The year 2007 has been denoted with favorable business reports, capital increases of the companies and IPOs of shares. The biggest euphoria among the investors was caused by the IPO of shares of the biggest Croatian telecom company Hrvatski telekom. The main Zagreb Stock Exchange index CROBEX reached the new record of 5.392 indices points due to the development of construction sector and boat carrier transport services. CROBEX increased by 63% in the year 2007. The total market turnover amounted to 9 billion EUR, resulting in 36% more than in the year 2006, whereas the total market capitalization increased by 66%. BOSNIA AND HERZEGOVINA Bosnia and Herzegovina both stock exchanges are still developing. In the year 2007 the Sarajevo Stock Exchange experienced as much extreme increases as extreme decreases of share prices and consequently of the Sarajevo Stock Exchange index SASX-10. In March 2007 the positive trend of stock exchange index reversed and remained negative until the end of the year. Consequently, the SASX-10 concluded the year only 20% higher than in the previous year. This is according to the current business results of the companies quite reasonable. The total market turnover in the year 2007 amounted to 651 million EUR, which is 62% higher than in the previous year. In the year 2008 the Sarajevo Stock Exchange plans to record a 5% increase in the value of turnover. Such predictions are based on the circumstances on the market and the expected stagnation after the strong growth in the first half of the year 2007. The Sarajevo Stock Exchange also plans to create the corporate management code in order to promote the appropriate behavior of the issuers of shares. They will also reinforce the attempts to include some attractive companies in the elite stock exchange market – the official quotation.


They are not satisfied with the fact the official quotation was reduced to only three companies – Bosnalijek, Klas and Sarajevo osiguranje, so they will continue to persuade managers of the selected companies in the advantages of the quotation. In the neighboring Banja Luka Stock Exchange the year 2007 was as excited as in the Sarajevo Stock Exchange, only that the fall of the main Banja Luka Stock Exchange index BIRS was even deeper than in Sarajevo. However, the reasons for a decrease were similar than in Sarajevo: (1) unreal growth of share prices, (2) buying euphoria of investors at the beginning of the year 2007 and (3) non-transparent privatization of some companies in the primary industries (i.e. electro industry), causing the investors’ uncertainty. In order to increase already low share prices and regain the investors’ trust, the government needs to provide higher supervision and transparency of the capital market. The Banja Luka Stock Exchange index BIRS attained a new record of 5.281 indices points in April 2007 but felt until the end of the year. At the end of the year BIRS returned to the levels from the year 2006. The total market turnover on the Banja Luka Stock Exchange amounted to 379 million EUR, resulting to 91% higher value than in the year 2006. However, market capitalization in the year 2007 increased by 4%, resulting to 4 billion EUR. Investors were mainly trading with the shares of Rafinerija nafte Bosanski Brod, Telekom Srpske Banja Luka and Investment Fund Zepter Fond Banja Luka SERBIA On the yearly basis the Beograd Stock Exchange experienced considerable growth. At the end of April 2007, the main Beograd Stock Exchange Index acknowledged a new record of 3.231 indices points. After that, the index generally experienced negative trend until the end of the year. The main reason for a decrease was the unsolved issue about the Kosovo independence, causing investors’ uncertainty. If Serbia will be willing to cooperate with Western countries concerning the Kosovo independence, the most probable scenario will push the share prices upwards. The total market turnover in the year 2007 amounted to 2 billion EUR, which is 67% more than in the year 2006 MACEDONIA The main Macedonian Stock Exchange index MBI-10 experienced the same trends as other indices in the region. Until September 2007 the index was experiencing positive trend gaining 163% of its value. At that time index surpassed the psychological boundary of 10.000 indices points. From September until the end of the year index lost 23% of its value.


The reasons for a decrease are similar to ones experienced in the he countries ou from the region. On one hand, the index felt due to the capital market overheating and on o the he other h hand thee inves invesi tors’ uncertainty due to the political instability in the countries o of the e reg region. In n th the year 2007 7 the total market turnover amounted to 683 million EUR, resulting iin 34 34% 4% higher value alue tha than an in the an year 2006. Market capitalization increased by 233%, amounting tto 5 b billion illion EUR.. Inv Investors Investor st were mainly trading with the shares of Komercijalna banka Skopje, Alk Alkaloid oid d Sko Skopje ko o j and d Makpetrol kpetrol Skopje. BULGARIA The Bulgarian Stock Exchange market is booming. The year 2007 was denoted en ed with IPOs. s. Recent researches claim that Bulgaria now ranks only behind Poland and Russia in n te terms of IPOs O so farr this year, after doubling its 2006 IPO tally and the amount of revenue raised. se Since S the Bulgaria’s Bu accession to the EU 12 IPOs were been carried out on the Bulgarian Stock k Exchange, chaa raising sing si ng total of 191 million EUR between them. In contrast to the moribund trading on other regional stock exchanges, ge es,, such as Budape Budapest’s,, Sofia’s exchange is fairly buzzing. A look at the statistics shows just how w mu much: (1) muc 1 tthe market 1) et capitalization reached 10 billion EUR at the end of June 2007, an increase as o of more r than 109% 09% since the end of June 2006; (2) in the first six months of 2007, the BSE recorded co ded tur turnover ur of 34 of 340 million EUR, which was an 86% increase over same period in 2006, (3) the av average rage ra ge dai daily y tu turnover ver in the first half of 2007 stood at 11 million EUR or 125 trading sessions, almost mo t double the tur turn-turn over in the first half of 2006. In the second half of the year 2007 the Bulgarian Sto Stock ock Exc ock Exchange e was somewhat under the influence of the sub-prime mortgage application problem em m in the USA bu but the fall of the market index was limited, comparing to the stock exchange ge indices ind in the region. UKRAINE The Ukrainian Stock Exchange market was the best performing rf market in the world in the year 2007. Utilities, metals, mining, machine-building and re real estate e stocks aall rose over 200% on average in 2007. The entry of large foreign investment funds; und an emerging domestic investment base; solid economic growth despite political upheaval; improving pro corporate transparency sp and profitability as well as the discovery of many new and undervalued derv rva stocks all factored tore in the Ukrainian market more than doubling in value. There are many factors likely to help the market sustain in itss ra rapid growth. th With no o election elections sched sched-uled in Ukraine for the next two years, the government nm nt has a great at opportunity to jumpstart mpstarrt mp rt long-awaited reforms in the agriculture, energy, coal oa and nd transportation at sectors.


Another important issue is reform of the regulatory environment for the stock market and improvement of corporate governance standards. The furry of new IPOs and new transparent privatization tenders will inject fresh liquidity into the equity market to meet strong demand from both foreign and domestic investors. Ukraine is developing market, which means numerous growth opportunities and a lot of potential to be unlocked in the future. Its definite strengths that will help the market realize its potential include above 7% real GDP growth, abundant natural resources and large population of 46 million with rapidly rising disposable income, which creates a vast domestic consumption base spurring economic growth.

Picture 6: The Movement of Stock Exchange Indices in the Year 2007

300

250

200

150

100

MBI10

BELEX15

SASX12

BIRS

CROBEX

SOFIX

PFTS

2007.12.3

2007.12.3

2007.11.5

2007.10.1

2007.9.3

2007.8.1

2007.7.2

2007.6.1

2007.5.4

2007.4.2

2007.3.1

2007.2.1

2007.1.10

50


LINKS TO REGIONAL STOCK EXCHANGES Bulgaria Stock Exchange: Zagreb Stock Exchange: Macedonian Stock Exchange: Sarajevo Stock Exchange: Banja Luka Stock Exchange: Beograd Stock Exchange: Ukrainian Stock Exchange: Ljubljana Stock Exchange: Bucharest Stock Exchange:

http://www.bse-sofia.bg/ http://www.zse.hr/ http://mse.org.mk/ http://www.sase.ba/desktopdefault.aspx?tabid=1 http://www.blberza.com/v2/ http://www.belex.co.yu/ http://www.pfts.com/eng http://www.ljse.si/ http://www.bvb.ro/

Kazakhstan Stock Exchange:

http://www.kase.kz/eng/

Presentation Qwest Investments  

Presentation of investment company Qwest Investments.

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