The Bucharest bourse’s general index BET-C went up by almost 20% in 2013. The index does not include the shares of the five regional investment funds SIFs). The BET index (of the ten most liquid shares, SIF excluded) climbed 26.1%.
The trading manager of Intercapital Invest, Mihai Muresian, believes the bourse could replicate this year’s performance in 2014, or even exceed it if Romania’s rating improves and the world’s economy grows stronger.
“An improvement in the country rating would boost investments as many institutional investors cannot tap the Romanian bourse because of the market’s low rating,” Muresian told MEDIAFAX.
He says periods of corrections could come, but that they will be marginal compared with positive times. However, he notes that Romania’s economic recovery is still very frail and largely based on agriculture. He says political disruption could create instability at any time.
Dragos Darabut, general manager of SAI Vanguard Asset Management, believes the economy will “perform at least similarly well” next year, saying inflation is low and that central bank BNR has room for maneuver.
“Economic growth will also reflect in the results of companies listed on BVB. Rising profits, with steady evaluation multiples means share prices will rise at the same pace,” he adds.
The bourse capitalization climbed by 37% (RON36.1 billion) to RON133.82 billion (EUR29.98 billion) in2013, driven by the price increase and by the listing of Nuclearelectrica (RON3.15 billion capitalization) and Romgaz (RON13.17 billion).
The evolution of the market was mainly influenced by the main external markets, which set new historic highs, being fuelled by significant liquidity injected by major central banks to support economies.
“The latest state listings, the special sales conducted by FP and EBRD, as well as the listings announced for next year, have improved liquidity. I expect this dynamic to continue in 2014 at an even faster rate,” says Mihai Chisu, broker at Swiss Capital.
Shares of Fondul Proprietatea , the most liquid shares on the market, closed up 51.7% on end-December 2012. Major risers also included Impact shares (4.7 times), Cemacon (2.5 times), Prodplast (2.3 times), while the biggest declines were recorded by shares of companies such as MJ Maillis (-71.4%), Romcarbon (-57.8%) and Ropharma (-48%).
As for the trend for 2014, brokers have different opinions, but they all say the trajectory of the Romanian stock exchange will mainly be dictated by the external trend and by the decisions of major central banks on programs to support the economies.
“On the local market we will have presidential elections and the political environment is not exactly trouble-free. The banking system continues to be stifled by the provisions needed to cover reckless risks taken during the economic boom period. On the external market, the fact that markets have reached historic highs generates tensions over potential corrections,” says Simion Tihon, broker at Prime Transaction.
On the other hand, Claudiu Cazacu, chief analyst at XTB Romania, believes a correction is possible in the coming months and estimate the BET index will end next year 7.5% below the 2013 level. He expects strong fluctuations, from 15% rises to declines of as much as 30%.
“The initial enthusiasm aside, markets will have to get used to rising interest rates in the US and the stages of adjustment can also include stormy times. Investors will pay more attention to emerging markets in general and to Romania in particular – the performance of the economy and budget indicators.”
Adrian Ormenisan, head of the Intermediation Service of SSIF Broker, also expects imminent corrections. He says major markets have risen significantly in the past few years without long periods of decline in between.
“A good dividend yield could save the evolution of certain shares in case of a general correction,” Ormenisan also said.
The head of the capital markets department of BCR, Mihai Iulian Caruntu, expects yields of 3.5%-6% for the dividends that could be paid by OMV Petrom, Transgaz, Romgaz and Fondul Proprietatea, and estimates banking interest rates of around 3% in 2014.
“If we look at the current yield of government bonds in lei for 5 and 10 years, the level is 4.7% and 5.3% respectively – the dividend yield for major BVB shares is attractive – I think this is the best instrument to select mature companies in investors’ portfolios,” Caruntu adds.
Periods of decline could however provide opportunities for investors to buy at lower prices.
“Companies such as OMV Petrom, Romgaz, Nuclearelectrica, as well as Transgaz and Transelectrica, alongside the other companies in the energy sector, have a high potential and I think they should be considered by investors.
The head of SAI Vanguard Asset Management, Dragos Darabut, believes markets are not yet in a stage that heralds major corrections.
“John Templeton [founder of Templeton Mutual Funds] said rising markets are born when investors are pessimistic, they consolidate during periods of skepticism, reach maturity when markets are optimistic and end during times of euphoria,” Darabut says.
“If we consider the US market, I would say we are somewhere in between the second and the third stage. I don’t think we are in the euphoria stage yet – in this phase there are a lot of successful IPOs, companies that trade at very high evaluations. We are not there yet,” he goes on to explain.
For next year brokers mainly bet on the shares of energy companies, as well as on the shares of Fondul Proprietatea and those in the financial sector.
“The estimated impact of the tax on special constructions appears to be a major one, of around RON100 million at Nuclearelectrica and of over RON150 million at Hidroelectrica. This new tax would significantly affect companies’ profit and would drastically reduce the positive impact of the liberalization of the energy market. This is because the two companies are still forced by [regulatory authority] ANRE to sell major amounts of electricity at significantly lower prices than on [energy bourse] OPCOM,” Caruntu says.
(English version by Daniela Stoican)