Foreign institutional investors halved their exposure to companies listed on BVB over the past decade

Ten years ago, when the Bucharest Stock Exchange (BVB) was at its peak, investments made there by foreign investors were worth around EUR 1.4 billion. The crisis passed and the market recovered, but foreign investments did not return the same levels. Today, around 100 foreign investors have an exposure of under EUR 700 million, half of what they had a decade ago.

Still, the market is seen as “attractive, responsive and promising” by foreign investors, according to a perception study conducted by the Romanian Investors Relations Association (ARIR) in November 2018, among investors from Romania, the United Kingdom, the United States, Hungary, Netherlands, the Czech Republic, Estonia, Poland, New Zealand and Finland, with total assets of EUR 5.7 billion and an exposure to Romania of EUR 689 million. Most investors have been trading on the BVB for more than 3 years and, in 85 percent of cases, would recommend investing in the shares listed on the local capital market to other investors.

“The results of the perception survey conducted in November gave us a broad picture of the situation at the time the association was founded. These confirm the objectives, the direction of action of ARIR, as well as the expectations of institutional investors for better communication of listed companies. In addition to transparency, in the assessment of companies and the investment decision, the context and the macroeconomic perspectives also matter. Most likely, if we reconfigure the study now, there will be another weakness of the market, especially linked to the predictability of the economic framework,” says Daniela Serban, ARIR president.

The study revealed that Romanian companies listed on the BVB are highly responsive to institutional investors’ questions and concerns, according to 84 percent of institutional investors. They communicate most often with listed companies through dedicated events (76 percent), but also by email or phone (56 percent).

The availability of the management of listed companies is 72 percent, in line with or above the expectations of institutional investors. At the same time, 60 percent of the respondents stated that the transparency and the quality of reporting of the companies listed at BVB correspond to their expectations. Regarding the experience of institutional investors in communicating with companies at the IPO, 28 percent said it was positive and 28 percent neutral; investors agreed that companies in the process of listing are actively present in roadshows and have well-prepared presentations.

The strengths of the BVB, as seen by institutional investors, are the dividend yields (80 percent), the companies listed having low valuations and growth potential, the low volatility and the improvement of corporate governance. Oh the other hand, the weaknesses of the market are the small liquidity and market depth (50 percent of respondents), a reduced sectorial diversity, low activity of retail investors and low diversity of products.

The biggest foreign investors can be found among the shareholders of Fondul Proprietatea, where foreign institutional investors own 16 percent of the shares (app. EUR 280 million). Recently, AIO VI, an investment fund located in Ireland has increased its position to 6.69 percent of the shares, equivalent of 490 million shares.

BVB gathers around 5,000 accounts of active investors, meaning traders that buy and sell frequently and only 100 are foreign institutional investors. This is the reason why the market lacks liquidity, a thing that most of the foreign investors are pointing out as a reason for not entering our market.

The biggest investors on BVB are the private pension funds (Pillar II) as they are forced by law to invest in local instruments. The funds from Pillar II have assets of EUR 10 billion under management.