The decline that Bulgarian indexes started at the end of 2007 and continued in the first months of this year has been described by analysts as “having a sobering effecr” while investors are calling it “illogical”.

Who should we believe? We should probably listen to analysts, as this is their job and they are supposed know what they are talking about, although history has seen a lot of cases when analysts turned out to be wrong.

After Bulgaria's accession to the EU, the correlation between the local capital market and the foreign ones (especially those in the EU) has increased significantly.

Due to the lower stage of development of the local stock market, as well as to its size and its relatively low efficiency compared with EU markets, Bulgarian indexes advanced at a much faster pace than the other indexes in the EU.

This caused concerns about a possible bubbling in stock prices, which together with the global financial crisis and foreign investors' withdrawal from developing markets, quite logically lead to the correction we are witnessing now.

Whether this correction is too deep is also a subject of discussion. That is why we decided to compare it with other EU markets.

We have to bear in mind though, that Bulgarian indexes ended the past year on positive territory and that their annual advance was much higher than that of indexes in most countries in the region. This may be explained with the specificities of our market, such as its very high volatility.

The blue chips index SOFIX has lost some 32.4% so far this year, which is the biggest fall in the region. Turkey's index is close behind, with a decline of 31.2%, and those in Croatia and Romania have lost 28% and 25.2% respectively.

In other words, SOFIX's loss is comparable to that of other indexes in the region. The number one question for investors is which country has the relatively cheaper market?

The answer would also to a large extent answer the question which market has the most growth potential?

As you can see from the following chart, we may call SOFIX the most expensive index in the region, based on P/E ratios (the only exception is Serbia, which is not a EU member).

CountryP/EYear-to-dateIndexRomania13,68-25,20%BETSerbia19,97-19,60%Belex 15Russia13,28-3,30%MICEXCroatia14-28,00%CROBEXTurkey9,39-31,20%ISE 100Czech Republc12,5-12,70%PXPoland12,1-22,70%WIG 20Hungary8,52-18,90%BUXBulgaria17,18-32,40%SOFIX

This article is analytical. This is not a recommendation to buy/sell stock.