VZCZCXRO2844
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHPOD #0106/01 1021447
ZNR UUUUU ZZH
R 121447Z APR 07
FM AMEMBASSY PODGORICA
TO RUEHC/SECSTATE WASHDC 0154
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/USAID WASHDC
RUEHPOD/AMEMBASSY PODGORICA 0161

UNCLAS SECTION 01 OF 02 PODGORICA 000106 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV MW
SUBJECT: MONTENEGRO'S STOCK MARKET: BULL OR BALLOON? 
 
 
PODGORICA 00000106  001.2 OF 002 
 
 
¶1. Summary: Montenegro's stock exchanges exhibited strong growth 
in the first quarter of 2007, with indices up 79 percent 
(Montenegroberza) and 90 percent (NEX Montenegro). Roughly half 
the increase came in March. Similar growth was seen in 2005, at 
that time driven by demand for shares in large, profitable 
state-owned companies on the verge of privatization (Telekom CG, 
KAP - aluminum).  The reasons for the current surge vary: some 
experts point to foreign capital, which would denote a bull 
market.  Others believe that domestic investors have bid shares 
up on incomplete information, which would likely lead to a 
significant correction. Post concludes that while some 
speculation is present, most of the growth relates to 
established companies, or to an expectation that share prices in 
soon-to-be privatized companies will repeat earlier, positive 
patterns. End summary. 
 
 
 
Two Stock Exchanges 
 
------------------- 
 
 
 
¶2. Montenegro, unusually enough for such a small economy, has 
two well-functioning stock exchanges.  Montenegroberza was 
established in June 1993, has 446 listings (companies and 
funds), and has a current capitalization of Euros 3250 million. 
Turnover in March 2007 was Euros 42 million. NEX Montenegro was 
established in late 2001 and has 436 listings (companies and 
funds). Turnover in March 2007 was Euros 78 million, a record 
level.  On both exchanges, monthly turnover matches annual 
turnover for all of 2004, a seven-fold increase.  Sixteen 
brokerages exist in Montenegro, three opening since December 
¶2006. 
 
 
 
 
 
Sharp Stock Price Growth in March 
 
--------------------------------- 
 
 
 
¶3. In March, the Montenegroberza gains were dispersed among a 
number of companies, with significant trading in shares of 
Plantaze vineyard, the Bijela shipyard, the Port of Bar, and the 
Montenegrin railways -- all slated to be privatized. Invest bank 
and Kombinat Aluminuma Podgorica (KAP) also had significant 
activity, with Invest bank driving the market index with a near 
doubling in share price.  The NEX's most active company was, 
unsurprisingly, the profitable and privatized Telekom CG, with a 
turnover of more than Euros 15 million. The Tobacco Company of 
Montenegro and the Electric Company of Montenegro, both slated 
for privatization, also showed strong activity, as did 
tourism-related companies. However, the strongest price growth 
was in stocks with less activity, mainly tourism companies with 
valuable assets. 
 
 
 
Radoje Dakic - Money for Nothing? 
 
--------------------------------- 
 
 
 
¶4. The extreme growth in share price of the bankrupt state-owned 
firm Radoje Dakic, from a nominal one Euro per share to 18 
Euros, attracted adverse comment. Radoje Dakic was a 
manufacturer of heavy equipment (bulldozers, cranes, etc.) that 
shut down production under war and sanctions in the 1990s. 
Foreign competition has since driven it out of business. 
However, Dakic's buildings sit atop valuable acreage just west 
of Podgorica. Speculation in Dakic was driven by an apparently 
mistaken belief that Dakic owns the land; it appears that the 
state-owned acreage is severable from the state company itself. 
Reportedly, the GoM will use the land proceeds to fund pensions 
for Dakic's employees. It should also be noted that March sales 
of Dakic shares amounted to just over Euros 125,000, compared to 
turnover in the other companies noted, which generally ranged 
from Euros 2 to 5 million. 
 
 
 
Foreign Investment 
 
 
PODGORICA 00000106  002.2 OF 002 
 
 
------------------ 
 
 
 
¶5. Only the smaller Moste exchange reports the percentage of 
foreign-based transactions: 13 percent in March. Post's 
discussions with the GoM, including the Agency for the 
Prevention of Money Laundering, indicate that the same 
percentage holds true for the larger NEX. 
 
 
 
Bull or Balloon 
 
--------------- 
 
 
 
¶6. Comment: While there are overtones of 1929 Wall Street in the 
recent stock market growth in Montenegro -- more "ordinary" 
investors, more brokers -- most recent price growth is repeating 
earlier patterns. Those include strong investment in 
established, profitable, privatized companies like Telekom CG, 
and pre-privatization share price growth in state-owned 
companies. The example of Radoje Dakic, with wild price growth 
driven by bare speculation, is not wide-spread, which is a good 
sign. End comment. 
BARNES