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(Updates delay, dinar in third, fifth paragraphs.)
Dec. 9 (Bloomberg) -- Serbia’s dinar is the second-best performing currency in Europe this year as investors bet the Balkan nation’s ability to attract foreign capital will outweigh today’s delay in European Union entry.
The dinar gained 0.8 percent against the euro in a single day on Dec. 2 after Societe Generale SA said it will increase lending in the former Yugoslav republic. It has advanced 2.7 percent this year, more than any European currency except the Moldovan leu as the 27-nation EU’s markets have been wracked by the sovereign-debt crisis.
Optimism over investment and the economy are rising, even as the EU put off Serbia’s candidacy to March because the government in Belgrade hasn’t contained violence in Kosovo. EU President Herman Van Rompuy said today the 27-nation bloc wants to see Serbia make more progress in improving its relations with Kosovo, the Albanian-dominated breakaway province.
“I don’t think anyone these days buys Serbia on the back of the EU accession story,” Timothy Ash, the head of emerging markets at the Royal Bank of Scotland in London, said in a Dec. 6 e-mail . “I don’t tend to think investors will be particularly concerned by the latest development” as they “don’t see EU accession in quite the same light anymore after Euro periphery problems.”
Currency, Stocks Gain
The dinar gained 0.3 percent by 2:53 p.m. in Belgrade to trade at 103.0199 to the euro, according to Bloomberg data.
The index of Serbian most actively traded stocks, Belex 15, gained 0.63 percent. Brokers including Nenad Gujanicic of Sinteza Invest Group said the upward move was positive “considering the degree of nervousness in global stock markets and changing sentiment” and there was no sign of foreign portfolio investors dumping Serbian equities.
“If they start to sell, the weekly index declines will be in the double-digits,” he said in a phone interview in Belgrade.
Serbia, shunned by western investors under former President Slobodan Milosevic, has made progress in overhauling its economy and stabilizing the political system, the European Commission said on Oct. 12, when it recommended candidate status.
EU ministers on Dec. 5 declined to give firm support for the country’s candidacy, leaving it to today’s summit for leaders to make the final decision. At the same meeting, EU leaders grappled with the sovereign-debt crisis and downgrade warnings, making Serbia less of a focus.
“The timing is very poor for Serbia” and “reform and expansion fatigue has become entrenched,” Richard Segal, a London-based emerging markets strategist at Jefferies & Co, said in a Dec. 6 e-mail.
Serbia has been counting on closer ties with the EU and working to tear down political, economic and legal obstacles to entry as it seeks investment to keep the economy from falling back into recession.
Authorities turned over Radovan Karadzic, Ratko Mladic and Goran Hadzic, all suspects of war atrocities during the conflict that led to Yugoslavia’s collapse, completing cooperation with The Hague-based United Nations war crimes tribunal.
The government in Belgrade refuses to recognize the independence of Kosovo, the center of a 1999 attack against Serbia by the North Atlantic Treaty Organization.
Relations between Belgrade and the Kosovar capital Pristina soured further after the former province declared a trade ban on Serbian goods and sought to gain control of cross-border trade in the province’s Serb-populated north.
Local Serbs have maintained roadblocks since and occasionally clashed with NATO troops, who try to ensure free access at checkpoints.
Lutz Roehmeyer, a fund manager at Landesbank Berlin Invest in Berlin who oversees 11.5 billion euros ($15.3 billion), said a political setback would “not be a big drama.”
“With so little foreign investors involved, there is no big disappointment, as the ones who are invested, like us, did not expect a smooth ride in EU talks,” Roehmeyer said in a Dec. 6 e-mail.
The currency and bonds will be more affected, Roehmeyer said, by elections next year.
Support for the policies of President Boris Tadic and Prime Minister Mirko Cvetkovic has eroded since July among the 60,000 Serbs who live in Kosovo’s north. A third of them, unhappy with the government’s efforts to make peace with the Pristina government, applied for Russian citizenship last month, saying they feared violence may escalate.
Overall public support in Serbia for EU entry sank to a record-low 53 percent in a June 16-17 poll from 57 percent in December, according to a poll conducted by the country’s EU Integration Office.
Candidacy benefits for Serbia would include help with structural reforms and infrastructural projects and the gradual lowering of trade barriers, said Eldar Vakhitov, an economist at London-based Barclays Capital.
Societe Generale, in a note yesterday, was more positive about Serbia’s overall prospects.
“Serbia stands a good chance to gain membership candidate status, which would represent a significant boost to investor confidence,” Benoit Anne, London-based head of emerging-market strategy at Societe Generale, wrote in the research note.
--Editors: James M. Gomez, Balazs Penz
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