Romania's capital market was shaken by the financial crisis last year amidst falling investor confidence and lack of equity. The evolution of shares listed on the Bucharest Stock Exchange has spelled losses for both Romanian and foreign investors, and although most of the listed companies recorded increase in their financial results, their shares dropped.
This has lead to the BSE capitalization halving on 2007 and even dipping below the 2005 level. The BSE reached a EUR 11.6 billion capitalization last year, according to its statistics, down on the EUR 24.6 billion in 2007.
If it were not for the financial crisis, the local stock market had the grounds of a promising year. Last year, ten new companies were traded on the BSE and on its Rasdaq platform, but this didn't help the market as much as expected. Companies like Teraplast, Erste Bank, and Transgaz were among the IPOs on the BSE last year. The bleak outlook for the capital market has deterred other companies which had planned to follow suit and start floating on the BSE, and they are now biding their time.
With its BET index dropping by as much as 70.4 percent, according to the BSE's statistics, the local stock exchange was the sixth worst affected stock market in the world in last year's international financial context, according to a study released by Bespoke Investments Group. Romania's BSE losses came after falls in Iceland, where indices dropped by as much as 94 percent.
The indices drop on the BSE was smaller than but close to those in Bulgaria, Ukraine, Dubai and Russia, all with indices declining between 70 and 80 percent.
As bad as it may look, being only sixth in the list at the end of the year was actually an improvement on how it looked earlier in the year.
In November last year, Romania's BSE was the fourth worst performing among 84 countries studied by Bespoke Investments Group in terms of year-to-date evolution. For the third quarter of last year, Romania's stock market witnessed the fourth largest decline after Ukraine, Russia and Serbia.
The BSE's main index BET dropping in 2008 is a first for the 11-year old stock market, which has only witnessed BET appreciation in the last nine years.
The BET, which reflects the market evolution of the ten most liquid companies listed on the BSE, was last year only a little higher than its 2003 level, which was the year the stock market started to take off. In 2007, the BET index appreciated by 22 percent. Its biggest increase was recorded in 2004, when BET doubled on 2003. BET – C, which records the evolution of all companies listed on the BSE's first and second categories except for SIFs, also dropped to never before seen levels, after six years of staying in the green.
BET – FI, the index which records the evolution of SIF investment fund shares, went on a similar path as the other two, after seven years of accounting for year on year increases.
The decline in share prices and the low level of activity on the BSE triggered by the financial crisis even led to a one-day suspension of trading in October last year. This wasn't a novelty worldwide, as other stock exchanges, such as those in Russia and Brazil, also suspended trading on falling stocks last year.
The Rasdaq platform of the BSE market also suffered last year, although it was more attractive than the BSE to foreign investors and its indices were not as affected as the BSE's. The number of transactions with Rasdaq shares diminished on 2007 and the capitalization more than halved, to some EUR 3 billion last year, close to the 2006 level. The market's main index declined by 55 percent last year, after almost doubling in 2007 on the previous year.
Romanian residents were more active in trading on the BSE last year than non-residents, with some EUR 1.3 billion in buying and EUR 1.2 billion in sales. Non-residents traded only EUR 517 million on the buyers' side and EUR 558 million on the sellers'.
Foreigners see portfolio values shrinking
Foreign investors were less tempted by trading on the BSE, as many of them had suffered losses in their home countries or on other stock markets. At the beginning of last year foreign investors held almost half of the listed stocks on the BSE, according to data from the Central Depositary. Their Romanian share packages, some of which were among the best performing in their portfolios, have shrunk in price over the year.
But in December last year, foreign buyers managed to outrun Romanian buyers on the BSE in monthly trading for the first time in the last five years, on lowering interest from local investors. Foreigners bought EUR 26.3 million of shares on the BSE in December, according to recent statistics, while selling shares worth EUR 24.5 million.
Big guns nurse poorly portfolios
Investment fund QVT sold some of its Flamingo shares to Deutsche Bank and DWS Polska TFI in August last year. The fund currently owns 15.1 percent of the local IT&C retailer. Flamingo's shares dropped in price by 85 percent between
July and the last trading session of last year.
Investment company Middle Europe Investments (MEI), through its MEI-Roemenie en Bulgarije Fonds N.V fund, holds stocks of several companies such as Prospectiuni, Romcarbon, Rompetrol Well Services, Condmag, Iproeb Bistrita and SIF Oltenia, among others, according to its latest financial report. In June last year, the fund held participations in 40 companies listed on the local capital market. The value of its portfolio was of EUR 43 million in the middle of last year, down on the EUR 51.2 million it paid for acquisition, and has gone down further based on the new discounted share values.
Also mid last year, MEI's 6.15 percent in local Rasdaq-listed Prospectiuni was worth some EUR 5.6 million, being the most valuable share package the fund held in a Romanian company. But the company's shares dropped in value by as much as 92 percent last year, which has had an impact on the value of MEI's stake.
Swedish East Capital Eastern European fund holds stakes in locally listed Flamingo, Impact, Petrom, and the five SIFs, worth more than EUR 12 million, according to its half year report in 2008. Petrom and Impact were among the top ten largest holdings of the fund. Another fund managed by East Capital, East Capital Balkans fund, held participations in 21 companies listed on the local stock market, a local stake worth some EUR 52 million mid last year.
Petrom's share value on the BSE has halved since July last year, while Impact saw a more than 80 percent drop in its share price between July and November last year, when it suspended its stock from trading.
Despite grim year, BSE plans to become regional hub
This year, the BSE intends to start creating an international trading platform hubbed from Bucharest, allowing international investors to buy the most liquid shares on CEE stock markets. The BSE has brought in Giulio di Cerbo, a former London-based banker with Citigroup, to help with
the creation of the new platform, alongside the BSE and the Central Depository.
“We have 28 projects to improve the local capital market and we have already started some of them,” said DiCerbo. The volume of BSE deals could be 40 times higher that it currently is, according to the banker, who believes the Bucharest technical platform is one of its strong points, even better than technical platforms on Western markets, such as the London Stock Exchange.
The multilateral trading facility (MTF) he is planning to help create in Bucharest is not a novelty in Europe. Western markets already have such facilities, usually created by investment banks.
By Corina Saceanu