Bucharest Stock Exchange, up 5% in May, equity trading sees significant growth on positive economic developments

The main index of the Bucharest Stock Exchange, BET, went up 4.64 percent in May, which makes it the best month for Romanian stocks since August 2013, statistics show. The BET, which reflects the price movement of the top 10 blue chip listed companies, closed the month at its highest level in almost six years.

Equity trading on the Bucharest Stock Exchange (BVB) also grew 6.6 percent in May 2014 compared to the same month last year, to EUR 243 million, which is more than EUR 10 million a day. Excluding public offers, which are isolated events on the Romanian capital market, equities turnover grew by a third year on year, according to data published by BVB in its monthly report.

The positive evolution both in stock prices and trading value reflects more interest from foreign institutional investors for Romanian companies as the country posted the highest GDP growth in the European Union for the first quarter of 2014. Romania’s economy grew 3.8 percent in Q1 2014 and major international institutions improved their estimates for this year.

More good news came from Standard&Poor’s rating agency, who upgraded Romania to investment grade, following economic and fiscal progress in recent months. The international context is also favorable, with stock indexes in the US and Germany reaching all-time highs, which prompts investors to start searching for those markets that have lagged behind in recent years and have the potential to recover. Romania is one of them, as the BET is still some 40 percent below its peak in July 2007.

Bucharest Stock Exchange is starting to get international visibility

The international visibility of the Romanian capital market started to grow in the second half of last year when a series of public offerings of state owned companies (Nuclearelectrica and Romgaz IPOs) and private placements made by EBRD and Romanian EUR 3.3 billion investment fund Fondul Proprietatea for significant stakes in oil and gas company OMV Petrom and gas transporter Transgaz awoke interest from international investors for Romanian stocks.

But 2014 didn’t start so great for the local market as interest faded away, and the conflict in Ukraine determined investors to keep away from the region. The small size of the Romanian capital market, which winds only EUR 10 million a day in trading, compared to EUR 200 million in Poland, makes it riskier for large investment funds. Bureaucracy and specific market regulations that only apply locally make it even more unattractive, and this is why many large institutionals avoid coming here.

It is in this context that the leaders of the local capital market joined efforts with the market regulator and the political decision makers in the Government to eliminate some of the obstacles which drag on the market development. The aim is to make the Bucharest Stock Exchange more popular for foreign investors and in a couple of years to make it a candidate for emerging market status, as now Romania is only frontier.

“The continuation of the market reform, coupled with the structural and regulatory reform known as removal of the barriers, will strengthen these positive changes. We also expect that the upcoming IPO of Electrica will add up huge amounts of energy for the whole Romanian capital market, in its strive to be an efficient marketplace for all top Romanian companies,” said Ludwik Sobolewski, BVB CEO, in the May market report.

Romanian blue chip stocks posted significant gains in May

Romanian investment fund Fondul Proprietatea (BVB ticker: FP) had one of the highest nominal gains in May, adding more than 7 percent to its stock price. Fondul Proprietatea, which is managed by American group Franklin Templeton, has an ongoing stock buyback program aimed at reducing the discount for which its shares are traded, which is close to 30 percent compared to the fund’s net asset value per share.

Banking stocks also had a good run in May, with Romania’s second largest banking group BRD – Groupe Societe Generale (BVB ticker: BRD) gaining 8.48 percent. An even higher growth came from Banca Transilvania (TLV), the third Romanian bank by assets, which was up 12.8 percent. This performance is adjusted with the effect of a share capital increase which the bank currently has in progress.

Romanian energy stocks had lower nominal returns, but compensated with the dividends for last year. Many of these companies had their ex-dividend days in May, and their share prices adjusted accordingly as in some cases dividend yields were 10 percent or more. For example, electricity transporter Transelecrica (TEL) had a 2.2 percent increase in share price, in May, but the company’s dividend is 12 percent of the share price at the end of April, which makes the total return over 14 percent. Gas producer Romgaz (SNG) also returned about 10 percent in May, dividend included.

Oil and gas company OMV Petrom (SNP) and gas transporter Transgaz (TGN) had lower returns, of 3-4 percent, while electricity producer Nuclearelectrica (SNN) had a negative return of -1.3 percent for the month, dividends included. Some of these returns were also influenced by the financial results that the companies posted for the first quarter of this year.

Overall, however, the average return of the most important eight companies listed on the Bucharest Stock Exchange was more than 7 percent in May, which is more double the current yield for Romanian state bonds issued in local currency.

Andrei Chirileasa, andrei@romania-insider.com

 

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