After 2011 saw all Central and Eastern European stock exchanges record dramatic falls of up to 35%, as was the case of the Vienna bourse, analysts of Austrian group Erste expect shares in the region to become attractive for investors again in 2012. They expect the Turkish stock exchange to be the best performing one in Central and Eastern Europe in 2012, predicting a 20% rise for the ISE30 main index of the Istanbul stock exchange. The second-best performer could be the Prague stock exchange, which could rise 19%. The BET index of the ten most liquid shares on the Bucharest stock exchange is expected to be the third-best performer, with a 17% rise. Last year the BET index lost 17.6%, the PX index of the Prague stock exchange fell 25.6% and the Turkish stock exchange fell 22.8%.
“In Romania (…) sentiment is taking away a significant portion of performance outlook, but the fundamentals are apparently still strong enough to have the market scoring rather high (…). Romania remains our favorite in South-Eastern Europe,” says Henning Esskuchen, head of the CEE Equity Research department within the Erste Group.
Top performers in 2012: defensive and high-dividend shares
In 2012, investors should look at companies in defensive sectors and at companies with a high dividend yield, which have a significant growth potential. Oil and gas producers are the most attractive, according to Erste analysts, followed by utility and telecommunication companies, the latter being absent from the Bucharest stock exchange. Investors should keep away from construction companies and other cyclical sectors for as long as investors are concerned over Western economies going back into recession.
On the Bucharest Stock Exchange SIFs could be “hot” shares in 2012, considering that Parliament has raised the holding cap from 1% to 5% of the SIFs’ capital. Analysts expect the SIFs trading discount to net asset value to fall to under 50% this year from around 60% at present. Another factor that will fuel an appreciation of the shares of the five regional investment funds SIFs is the sale of BCR shares to Erste which will make their portfolio more liquid and reduce the share of non-listed companies to under 20%. The third growth driver for SIF shares in 2012 are the generous dividends expected to be paid from last year’s profits, with dividend yields likely to exceed 10%. Especially for SIF Moldova (SIF2.RO) and SIF Transilvania (SIF3.RO), which registered their capital gains from the Erste transaction for the 2011 fiscal year.
Fondul Proprietatea investment fund (FP.RO) will stand to gain if the privatizations announced by the Government take place. The main factor that could reduce the trading discount of FP shares from the current 60% is the listing of natural gas producer Romgaz, awaited this year, as well as of energy producers Hidroelectrica and Nuclearelectrica.
Erste analysts do not expect a fast reduction of the trading discount this year because of the sales pressure from former owners’ heirs.
“Investors who want exposure to Romania are looking at SIFs and at Fondul Proprietatea, which are almost equivalent to the Romanian economy. Moreover, these shares are also the most liquid on the Bucharest Stock Exchange, and liquidity remains one of the main risks for the Romanian capital market,” Esskuchen also said.
Petrom, which is controlled by Austrian group OMV, is a cheap share, according to Erste analysts.
“Petrom will have excellent opportunities on the energy market, where its own power station will outperform outdated thermal power stations. This, alongside the convergence of gas prices (that the Romanian authorities committed to reach by the end of 2013) will benefit the company, which will also be helped by the low indebtedness level compared with other companies in the sector.”
Among the shares favored by Erste are Transelectrica and Transgaz, thanks to their high dividend yields.
Overall, the Romanian capital market stands a chance of becoming more visible in 2012 if the privatization plans of the Romanian government attract enough attention from foreign investors. Attracting foreign investors is “absolutely necessary” considering that the insufficient number of local institutional investors makes it impossible to collect enough capital to successfully subscribe the offerings at Transelectrica, worth around EUR40 million, at Transgaz – EUR85 million and at Romgaz – over EUR300 million. The initial public offering to sell 15% in Romgaz, scheduled for June or September, will be the most important event of the year, as well as the biggest IPO in the history of the stock exchange, worth EUR300 million.
“There are real chances of secondary offerings at Transelectrica and Transgaz and at Romgaz taking place this year. If these offerings take place and are successful and the external circumstances improve, this could be an exceptional year for the Bucharest stock exchange, with a significant impact on an increase in liquidity,” the Austrian analyst concluded.
(English version by Daniela Stoican)