Cornerstone Communications, local firm specialized in investor relations and capital markets consultancy, together with MIA Marketing, a Romanian market research company, carried out between December 2021 and January 2022 the first study on the local capital market and the behaviour of retail investors in Romania.
The research was conducted on 177 local retail investors with exposure to companies listed on the Bucharest Stock Exchange, and it focused on their investment habits.
“Our study is the first exercise of this kind conducted in the modern history of the Romanian capital market. The last two years were intense – a record number of listings was paired with a major health crisis, each of these factors resulting in an influx of new investors. The number of retail investors in Romania is still low compared to other countries in the region. Nevertheless, the local base of such investors is extremely powerful. It has led to the rebirth of the Bucharest Stock Exchange as a financing tool for Romanian entrepreneurial companies. Yet, to develop the market, we all need to understand why people invest, and issuers need to be aware of what investors are paying attention to in order to address their needs better. In this context, the most concerning conclusion of the study is the gap between the short-term investment outlook that many investors have and the long-term perspective of entrepreneurs. This gap needs to be addressed through transparent communication between issuers and shareholders in order to manage the expectations of both the entrepreneurs and investors,” stated Zuzanna Kurek, founder, and CEO of Cornerstone Communications.
The main criteria for participating in the study was to have capital placed in the shares of companies listed on the Bucharest Stock Exchange at the time of the research. According to the analysis, 61% of the participants in the study hold shares of listed companies on the local stock exchange and other stock exchanges, while 39% own shares listed only on BVB. Investors in shares listed on BVB have diversified portfolios, with further capital being placed in cryptocurrencies (61.6%), followed by bank deposits (55.9%), real estate (52%), precious metals (38.4%), government securities (32.8%) and bonds (32.2%). 79.2% of people aged 18-35 who own shares listed on BVB also invested money in cryptocurrencies, while only 30.8% of people over 45 years with holdings in companies listed on BVB also hold virtual coins.
“This first study dedicated to the capital market and retail investors provided much needed food for thought for all participants in the local capital market – from investors to entrepreneurs, executives, as well as the institutions. We consider that the local investor base is dynamic; the investors have increased their interest and exposure to the Romanian capital market and alternative investments, such as cryptocurrencies, which were even more attractive than government securities. We see differences between generations, such as the generation under 35, where 70% of respondents have started investing in the last three years, and the one over 45, where half of our participants have been investing for more than ten years. These generations offer a completely different picture in terms of trading frequency, preferred sectors for investment, the return they seek, and what they look out for when making investment decisions. Our goal is to continue the research on the Romanian capital market every six months because we want to understand better the behaviour of local investors, their perception and expectations regarding the Romanian capital markets for better interaction between the listed companies and investors,” stated Cristian Ștefănescu, founder and partner of MIA Marketing.
53.7% of participants hold both shares listed on the main market and the AeRO market, and 44.1% only have shares listed on the BVB’s Main Market. At the same time, only 2.3% of the participants own shares listed only on the AeRO market. Thus, in terms of the structure of investments in the two markets, according to the answers received, an average portfolio at BVB consists of 76% of the shares listed on the Main Market, the remaining 24% being shares on the AeRO market.
From the point of view of the moment to invest on BVB, most of the respondents mentioned that they have invested for the first time on the stock market within the last three years (52.5%). A significant percentage of respondents, 26.6%, stated that they invested for the first time on BVB during the pandemic period between 2020 and 2021. 18.6% of participants in the study are people who invested for the first time on BVB more than ten years ago.
Regarding the main reasons the participants invested money on the Romanian stock exchange, 76.3% stated that they did so to record profit on the capital they hold, 67.2% to benefit from a higher return than that offered by a bank deposit, and 58.2% for investment diversification. Almost a third of the participants, 29.4%, said that they invested because investing in the stock market is easy.
When it comes to trading activity, 69.5% of respondents said they trade on a monthly or more frequent basis, while only 7.3% do so every 4-6 months. Of the people who trade shares on a weekly basis, 92.3% hold cryptocurrencies.
Regarding the average period of holding shares, 60% of the respondents mentioned that they keep a stock in their portfolio for a maximum of 12 months. Out of those respondents, more than half invest for a period of shorter than 6 months. 16.9% of investors usually invest in companies for period between 1 to 2 years, while 23.2% of investors have a medium and long-term vision, stating that they keep a share in their portfolio for more than two years.
Most investments are made in companies from the energy/utilities (68.9%), IT&C (63.8%), and the financial-banking sector (58.2%), followed by companies from the real estate sector (43,5%), telecommunications (37.9%), medical services (34.5%), and agriculture (33.9%). Retail (30.5%), pharmaceuticals (30.5%), industrial production and construction (27.1%) and transport (20.3%) companies were the least popular amongst the respondents.
When asked about the preferred types of shares, 44.6% of respondents stated that they equally prefer both shares that provide a high dividend and shares with high growth potential. A significant percentage of respondents, 40.7%, choose to invest in stocks with high growth potential, while only 14.7% look only at stocks that provide a high dividend. Regarding the composition of the average portfolio of the respondents to the survey, 56% stocks held are of high growth potential companies while 44% are shares of companies that provide a high dividend yield.
From the perspective of the targeted annual yield from stock market investments, 61.6% of the respondents consider a yield between 10-20% to be satisfactory. 15.8% of respondents are satisfied with a yield of over 20%, while the average of all answers translates into a yield of 14.5% per year. At the same time, when asked about to define an attractive yield, the average of all responses indicates 20% per year.
Regarding the number of IPOs and private placements in which the respondents participated in the last two years, 22.6% of respondents, participated in two IPOs or private placements, while 10.2% invested in five or even more IPOs or private placements in the last two years. Most of the respondents, 23.2%, did not participate in an IPO or private placement in the last two years.
The study conducted by MIA Marketing includes answers received from 177 retail investors, who at the time of the research had capital invested on the Bucharest Stock Exchange. Among the respondents, 77 investors were between 18-35 years old, 61 were between 26-45 years old, and 39 were over 45 years old. In terms of their level of education, 88% of respondents have higher education. Regarding the occupation of the respondents, 67% of them are full-time employees, 2% are part-time, 13% are entrepreneurs, 9% are self-employed, 1% are students, and 8% indicated another occupation.
The data presented above represent the first part of the results that MIA Marketing collected from respondents. Cornerstone Communications and MIA Marketing will publish a second part of the study in the coming period, which will provide information on the criteria that investors apply when selecting the companies in which they invest, what prevents them from investing in companies, and what they consider when making investment decisions.