Bulgaria's blue chips index SOFIX fell to a 4.5-year low yesterday. At one point during the trade session the index touched 458 points. SOFIX was launched in February 2001 and its base level is 100 points. In October 2007 the index reached the all-time high of 1952 points, which means it has lost more than 75% in the past 12 months.

SOFIX has wiped out nearly half of its value since mid-September 2008 when the world financial crisis began.

The index is currently traded at a 6.16 P/E ratio, according to BSE.

After the recent dramatic losses investors are curious to know if a reversal of the trend is possible.

In order for that to happen the market needs money and the question is how much is needed and where will it come from?

Local companies saw their market capitalizations plunge in the past several months.

The total capitalization of SOFIX stands at just 3.83 billion leva (1.95 billion euros).

The important thing here is how much is the free-float capitalization, as this is the capitalization of the shares that are actually traded on the market.

The chart you see below shows the free-float cap of the twenty SOFIX companies. It is calculated by excluding majority shareholders and those controlling more than 5% of the stock. This gives us a figure, which is not 100% accurate but gives a close enough impression.

The total free-float of the 20 companies is just 753 million leva (385 million euros) and we have to bear in mind that the actual value of the shares that may enter the market would be quite lower. The 20 companies in SOFIX are the most liquid ones on BSE and the ones that are most commonly seen in institutional investors' portfolios.

Mutual funds are currently maintaining significant cash reserves as they fear many investors may decide to buy shares. Meanwhile, pension funds control a total of 600 million leva (306.7 million euros) in bank deposits.

This means there is enough cash, and at the current prices, we can say the value of shares on the market is low.

Yesterday's trade was indicative – when buying picked up pace, the BG40 index jumped 5%, while BSE's total turnover was under 2.5 million (1.27 million euros). We are giving BG40 as an example because SOFIX was influenced by the floating of Holding Roads' new shares yesterday.

But this is just theory. No one can say for sure whether institutional investors will use their cash on the market even if the global situation improves.

CompanyCapitalizationFree-floatFree-Float Cap
Million BGN
Million BGNChimimport451,520,00%90,3FIBank434,515,00%65,2Corp40220,50%82,5Sopharma278,512,80%35,6Monbat243,424,40%59,5BACB239,926,20%62,9Neochim177,823,90%42,5Albena164,524,20%39,8Holding Roads150,333,40%50,2IH Bulgaria122,545,70%56CCB116,423,80%27,7Kaolin99,521,90%21,8Lead and Zinc Complex92,510,10%9,4Enemona89,523,50%21M+S Hydraulic66,422,60%15Elana REIT65,137,30%24,3Sparky Eltos54,721,70%11,9Orgachim51,830,70%15,9Toplivo45,326,60%12Euroins3130,90%9,6Total 3377
752.97