Croatian stocks rallied in the build-up to its addition to the European Union in July this year. But markets have cooled on the former Yugoslav country since then, with membership of Europe's economic and political union failing to counter concerns about low competitiveness and high levels of government debt.
Croatia, which borders Hungary, Bosnia, Serbia and Slovenia, saw its benchmark stock index peak at 2,025 on March 13 this year, after its accession to the EU was announced. Investors viewed membership as integral to making Croatia a safer investment destination, and enabling its access to EU development funds and the free trade market. However, stocks have subsequently fallen around 12.5 percent, with the index closing at 1,771.80 on Thursday.
Henning Esskuchen of Erste Bank, one of the largest banks in emerging Europe, said Croatia had gained from a "kind of marketing effect" prior to joining the EU in July. However, the immediate benefits of membership did not stop the fact that it lagged behind its eastern European peers in recovering from the global economic crisis.
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"It (the Croatian stock market) had a strong run-up prior to EU accession that has probably given some momentum, which is fair enough. But actually the date itself is a non event, what is important is the process," said Esskuchen, who heads central and eastern European equity research at Erste.