Over the past two years and especially in 2007, the Rasdaq segment of the capital market has evolved from being the capital market's ugly duckling to being the crown jewel. Rasdaq has more than once turned low-profile, rather risky investments into overnight celebrities posting yields and liquidity levels that outshined stocks on the Bucharest Stock Exchange (BVB).
“This year, there was an explosion of the Rasdaq segment. In 2005 and 2006, there was an average of about 580 transactions daily, while this year, in these first five months, we have 1787 transactions on average per day,” said Paul Brendea, analyst with Prime Transaction.
The verve on Rasdaq is contrasting with the rather still waters of BVB.
“The average number of transactions on the Rasdaq this year has gone up 250 percent compared to last year, while transactions on the BVB have only seen insignificant variations against 2006,” said Adi Lupsan, analyst with Intercapital Invest.
“Investments on Rasdaq come with higher risks than those on the BVB, but still we estimate that the growth of the market will stand between 40 and 50 percent in 2007, similar to what happened in previous years,” said Mihai Frunza, analyst with Vanguard.
Up to now, the intense interest in its stocks has made its mark on Rasdaq's indexes.
“Rasdaq indexes Rasdaq-C, RAQ-I and RAQ-II (the general index and the indexes for each of the two market categories) already grew 66, 54 and 87 percent respectively in the first half of this year. BVB indexes BET (measuring the performance of the most liquid stocks), BET-C (measuring the performance of all listed stocks) and BET-FI (measuring the performance of financial investment companies, SIFs) had much poorer results: 8, 16 and 8 percent respectively, compared to the end of last year,” said Lupsan.
He added that the growth potential remains high, even more so since many companies listed on Rasdaq continue to be undervalued.
“I'm personally inclined to believe that Rasdaq indicators can get to annual growths of over 100 percent in the next 2-3 years,” said Lupsan.
Whether transaction levels will also continue to remain as high as until now, it is a tough bet to make. The past months have been a busy time when many companies announced their intention to move up to BVB and others announced increases in their social capital, said Brendea. “The increase in transactions for the whole year is hard to estimate since we do not know how many companies will continue to remain on Rasdaq and how many of those who decide to remain will continue to be interesting for investors,” he added.
In any case, the average value of transactions is set to rocket this year, as it has already surpassed 2006 levels by 47 percent, said the Prime Transaction analyst.
“The daily average is also 3.5 times bigger this year,” Brendea said. “The cause for this spectacular evolution does not lie exclusively in the growing number of transactions, but also in the explosive growth in the price of shares,” he added.
“The average value of daily transactions went up by more than 300 percent, going from RON 3.4 million to RON 11 million this year. There are high chances that the growth dynamics will continue to remain at least as high over the upcoming period,” said Lupsan.
He added that Rasdaq's record is all the more impressive if we compare it with BVB's “modest” 5-percent growth in the average transaction value. Frunza of Vanguard estimated a growing liquidity for the entire 2007.
“For now, Rasdaq transactions stand at EUR 2-3 million on daily average. We can approximate that the average liquidity this year will get to be between EUR 3 million and EUR 5 million,” said Frunza. All would be well and rosy so far, if it were not for the high volatility and rumor-filled atmosphere at Rasdaq.
“We have now entered a period when financial results are no longer important; investors have stopped buying the business, they buy rumors or positive expectations,” said Brendea. The analysts noted investors' tendency to be content with nothing but good hopes and fall into the trap of encouraging news about companies' big capital increases or important projects, which leads to a virtual explosion in the price of certain stocks. “They eventually end up being traded at evaluation indicators that would normally drive investors away,” ended Brendea.
He said there are few liquidity-related risks since some companies have outdone BVB stocks in this respect.
“The biggest risk is attached to the extraordinary growths that have happened in the past months, growth that has no other foundation other than investors' hopes,” said the Prime Transaction analyst.
Lupsan of Intercapital Invest said investors eying Rasdaq should also be on the lookout for companies that are already overvalued and might suffer important negative corrections in the near future. Among the Rasdaq companies that make safer bets are those that have already proven their potential and have multiplied their value.
“Companies like Iproeb Bistrita or Imotrust Arad already post attractive financial indicators and still keep some growth potential. The construction sector is also showing a big development capacity due to the high demand and the increase in the purchasing power of the population,” said Frunza. Lupsan divided Rasdaq companies depending on the class of investors they might be attractive to. “There are companies whose daily trading value can easily go beyond RON 1 million, as are Dafora, Comdag, Armax or Imotrust, for instance. Their liquidity is comparable to big companies floating on the BVB. Their annual growths stand above 300 percent and they are accessible to big investors,” said Lupsan on the most-talked about class of stocks on Rasdaq.
The second category of stocks on the Rasdaq posts an extremely low liquidity, but their significant undervaluation means they have a big growth potential for the coming years compared to the companies in the first category, said Lupsan. “Unfortunately, these companies can only be recommended to small investors planning to invest on the long-term,” he said. A point that should be taken by the mass of investors swarming onto the Rasdaq market lately – for one reason or another.
Some investors switched to the Rasdaq since the former trading platform was replaced with the current one and the trading method changed to bidding.
“The second wave of investors were attracted by high yields produced by Rasdaq stocks,” said Brendea. There were also other positive circumstances that upped Rasdaq's popularity. “The lack of new issuances this year combined with the excess in liquidity on the market made investors look toward other investment opportunities,” explained Lupsan. “What is interesting to point out is that, in spite of already high yields on Rasdaq, the potential of the market will continue to remain high for the years to come. Comparatively, the Warsaw stock exchange, which is at least four years ahead of Romania's, has seen a growth of merely 24 percent in its WIG20 index, which shows the performance of its most liquid stocks,” said Lupsan.