XTB Analysis | Claudiu Cazacu: The fast recoil on the Bucharest Stock Exchange almost erases previous decline

Deniza Cristian 24/03/2022 | 16:25

After sharp declines, accompanied by strong safe haven movements, in February and the first week of March, stock markets began a rapid recovery. Stock market lows were set two weeks ago.

By Claudiu Cazacu, XTB Romania

 

The Bucharest BET index recovered 19.7% from the lows (March 7) until the end of Tuesday, March 22.

The DAX index in Germany rose 16.4% over the same period, while the US S&P 500 rose 8.5% between the moment of its lowest point and the end of March 22.

However, S&P500 is still down by 5.9% this year and DAX by 9.7%. BET is in a better position, with a minus of only 2.5%.

The initial percentage declines were higher in Germany and Romania compared to the US, and the returns were more consistent, but, interestingly, not enough to bring us close to recent highs in Germany.

Market attitude difference is justified by the idea that Germany is much more vulnerable both to the effects of sanctions imposed on Russia and to the rise in energy prices than the United States. There is already a historical difference in volatility between the two markets, which could also play a role in the current performance divergence, although the economic causes are probably more important.

The Romanian stock market outperforms those in the region, the differences being significant, except compared to the Czech Republic.

In Poland, the WIG20 stock market index is 7.2% below the level from the beginning of the year, BUX in Hungary is -12.6% and PX in the Czech Republic is -4.3%.

It is also worth pointing out to the Bucharest Stock Exchange vibrant recovery.

The local market was sustained by announcements and expectations for dividends with attractive returns, interest in energy stocks which hold a significant share in the index capitalization, and recovery of bank shares, with higher interest rates outlining favorable expectations for profitability.

The trend was mainly similar to the one in Europe, with hopes of a peace truce and hopes of moderation of energy, oil and gas prices being key factors in the recovery.

However, the perspectives remain uncertain, and the risk of new episodes of volatility is high.

On the one hand, oil resumed its growth, with Brent reaching $112.65 per barrel on Wednesday at 9.30, from a $95.24 / barrel low point on March 16. It is not far from halfway between the highs of March 8 and the lows of March 16.

The natural gas traded in Vienna has been around 100 EUR / MWh for a few days, less than half of the historical peak reached this month, but still almost 30 EUR / MWh above the values ​​of the first part of February. And energy is several times more expensive in Europe (production prices) than last year.

Even at current levels, prices are holding back economic activity, with drops expected temporarily and unevenly for the European industrial sector.

In the event of additional sanctions blocking the supply of natural gas, oil or both to the EU, the additional pressure to increase prices could mean an unbearable burden for the economy. Stock market investors could, thus, suddenly change their prospects.

Although interest rates are still well below inflation, their trend is upward.

Central banks in Eastern Europe have already taken steps in this direction.

The European Central Bank is considering a timetable for monetary tightening, and recent signs in the US even show that a 0.5% increase cannot be ruled out at the next Fed meeting.

However, US stock markets returned to the upward swing on Tuesday, despite rising interest rates on government bonds that foreshadow a more restrictive environment.

In Romania, the 3 months key interest rate reached a multi-year peak of 4.53%, unprecedented since 2013.

How could we interpret the optimistic attitude of stock market investors?

There are new factors in addition to the previous arguments regarding hopes for a truce and moderation of the oil price. It could be the perception that, on a relative approach, shares still offer, in the long run, a certain protection against inflation, in any case compared to cash, while the price. While the price of bonds, whether issued by the state or companies, decreases when the interest rate rises.

Under the present relative regime, investors seem to choose the winners of a relative, not absolute beauty contest. However, they can change their minds quickly if the oil, gas, or energy market will experience significant new increases in prices. Potential volatility, for cautious investors, would mean a relatively more cautious approach at the first signs of a storm.

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Deniza Cristian | 27/03/2024 | 17:32
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