An Update on Croatia’s Financial Markets

Returns chart for insurance policy
Photo by s_falkow

“Dobrodošli u Europsku uniju!” said EU President Borroso to cheering crowds in Zagreb. Croatian President Josipovic, standing at his side, described the occasion as a “lijepo i radostan dan za našu domovinu”. After years of sometimes-difficult negotiation, Croatia had at last become a member of the European Union. Of course, not everyone in the country was over the moon about it: the BBC quoted pensioner Pavao Brkanovic as observing; “Just look what’s happening in Greece and Spain! Is this where we’re headed?” Nevertheless, in a poll last year two thirds of voters were in favour of accession and there can be little doubt that EU membership will be positive for most Croatian businesses, especially those in the tourist sector, as well as for the country’s infrastructure.

In the short term it has not done much for the Croatian kuna though. For two months during the run-up to the Great Day the kuna strengthened from 7.6 to 7.45 kuna to the euro, an appreciation of about 2% to its highest level in nine months. Since the beginning of July there has been a little slippage and it has had to give back some of that ground. Whilst the kuna is not a heavily-traded currency such as, say, the yen or the pound, is possible there was a degree of euphoria-motivated buying ahead of accession day followed by reality-driven profit-taking as the empty bottles were carried to the skip. In the trade it’s known as “buy the mystery, sell the history”.

Short-term fluctuations aside, the kuna is back at its spiritual but undeclared home in the region of 7.5kn = €1. With Croatia now ensconced in the EU there is even less reason than there was a month ago to expect it to move far from that level for any length of time. The sterling value of the kuna remains defined by the sterling value of the euro

And for sterling it has not been much of a success story in the last month. A series of banana skins, including a new pessimist in the Bank of England governor’s office, served to knock sterling off track every few days. The most recent was a disappointing set of UK economic data which showed industrial and manufacturing production falling while the trade deficit widened. The figures were at odds with the latest purchasing managers’ index readings, which indicated accelerating activity across the UK economy, so they came as a surprise to investors, who reacted by selling the pound. When the dust settled it was two cents lower – call it 2% – on the month against the euro.

Other UK data in coming days and weeks will provide sterling with opportunities to redeem itself but it is hard to resist the suspicion that investors have got it in for the pound; heads it loses, tails it doesn’t win. Even though the broad run of ecostats shows the UK economy performing visibly better than Euroland, the numbers on their own cannot prevent investors taking pot shots when they spot a soft target.

Provided By Moneycorp

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