The Bucharest Stock Exchange ended 2012 with significant increases, the BET index of the ten most liquid companies rose by 18.7%, while the BET-FI of the five regional investment funds (SIF) and Fondul Proprietatea (FP.RO) went up 31%.
The main index of the Bucharest Stock exchange started 2013 on the right foot, going up 6% in the first two trading sessions and losing 1% in the session on Monday.
“What we are seeing in the markets now is not perfectly optimism, it is less pessimism because of investors’ reliance on central bank actions and abundance of liquidity that is searching for yield,” said Henning Esskuchen, head of CEE Equity Research at Erste Group Bank AG.
Investors on financial markets are aware of the macroeconomic situation of the Central and Eastern Europe and the risks of slipping into recession are already included in the asset prices therefore 2013 may see of stocks performing well.
“The Bucharest Stock Exchange (BSE) seems far from expensive, as indicated by the attractive 2012 dividend yields for the main stocks (between 7% and 9% for Fondul Proprietatea and Petrom, over 10% for Transgaz, between 10% and 20% for SIFs).
However, the domestic economy’s stagnation and the lack of scope for activating concrete economic growth drivers in the short or medium term cannot sustain a strong recovery of foreign investor interest in the Romanian equity market in 2013.
Under these circumstances, the upside potential for local stocks is limited to about 10-15%, while the risk of negative returns exists in synchronization with European market development, as well as with domestic macro picture development,” Erste analysts said in a report on the prospects of the stock markets in Central and Eastern Europe.
Erste Group rates as its preferred stocks in 2013 Fondul Proprietatea (FP.RO), OMV Petrom (SNP.RO), Banca Transilvania (TLV.RO), Biofarm (BIO.RO), Transelectrica (TEL.RO) and the SIF, especially SIF Transilvania (SIF3.RO) and SIF Oltenia (SIF5.RO).
Erste estimates a target price of 0.65 lei (EUR0.15) per share for Fondul Proprietatea, mainly as a result of the stock repurchase program, the end of Hidroelectrica’s insolvency and floatation of Romgaz and the secondary public offering of Fondul Proprietatea on the Warsaw Bourse. The fund is now trading at RON0.58/share.
Asked whether the SIF rally will last after a 30% increase last year, Henning Esskuchen said:
” [It will last] until dividend yields are substantially lower and discounts to NAV have been reduced to reasonable levels.”
SIF dividend yields reached a record 20% in 2012. Even though optimistic about the stock prices in 2013, the analysts are not as optimistic about daily turnover.
Erste expects daily turnover on the Bucharest Stock Exchange to be lower than EUR10 million in 2013.
“Due to the reduced investability of the local market, foreign investors will continue to claim substantial discounts in order to gain exposure on Romanian important stocks, with negative impact on their upside potential.”
(English version by Loredana Fratila-Cristescu)