FOCUS: Proprietatea Fund's Listing Cannot Lift The Bucharest Bourse Alone

After nine years of constant growth, the Bucharest Stock Exchange reached in summer 2007 its all-time highs.

But the market was badly hurt in 2008 by the financial crisis, which later became the global economic crisis. Many foreign investors pulled out of Romania, and stock prices tumbled on strong sale pressures. At that time, the bourse's composite index BET-C fell more than three times and the value of the five regional investment funds, or SIFs, fell more than six times.

In 2009, the bourse returned to growth, but the upward trend slowed down visibly this year. After a 37% rise in 2009, the bourse's composite index BET-C increased by just 14% this year. The SIFs gained 90% last year, but dropped 12% in 2010.

Thus, after two years of growth, the market barely made it to 2005 levels. The overall capitalization reached 44.9 billion lei (EUR1=RON4.2877), up 17% on the previous year, but halved from the level registered before the crisis.

Even though shifts were sudden over the past three years, some of the investors who bought stock between 2007 and 2008 did not rush to sell, and maintained their portfolios intact awaiting a market recovery.

Compared to the peak touched in 2007, the BET-C index is still 58% lower, while the blue-chip index BET is down 52%. The decline is even more visible for the SIFs, which lost 77% on average.

Brokers tell investors who preserved their portfolios to focus on the opportunities currently offered by the market, even though the listing of Fondul Proprietatea, alone, will not be enough to bring back the market to 2007 levels. The fund's listing needs to be corroborated with the sale of stakes in state-owned energy companies, as well as the listing of other private companies, analysts said.

"I would advise investors to see the loss in 2008-2009 as an irrecoverable cost and not to focus on recovering this loss, but on the opportunities that will come from now on. In time, they will have covered their losses, but the interval depends, of course, on the moment of purchase," said Razvan Pasol, general manager of Intercapital Invest.

The head of stock market research at lender BCR, Mihai Iulian Caruntu, believes the daily liquidity should top EUR3 million once the Proprietatea fund is listed, and the free-float value should rise by some 50%.

"This listing will do a lot of good for the market, because it will bring heavyweight investors following the marketing campaigns unfolded by the brokers and fund manager Franklin Templeton," Caruntu said.

Drawing in foreign investors through a coherent program of secondary offers and new listings is the main concern in consolidating a representative segment of foreign investors with active portfolios in Romania.

However, Pasol said that brokers and market institutions should not expect a miracle to happen after Proprietatea's listing, but they should intensify efforts to draw in new issuers, to add to the positive effects of the fund's floating.

While in the beginning of the year bourse activity was marked by speculators who moved on the slightest price variation, in the second half of the year speculator interest visibly dropped on reduced volatility and weaker correlation with the foreign markets.

Brokers pinned some of the final quarter apathy on the amendments brought to the tax code, namely a 16% taxation of earnings made on the stock market, regardless of the possession interval, as well as the quarterly payment of the tax. This amendment drove most of the speculators off the market, leaving only a handful of investors active.

As such, the average daily liquidity on the market dropped to some RON14 million in the second half of the year, as opposed to RON29 million in the first half. In addition, the daily value of trades is four times lower than the average daily liquidity seen in 2007, which had reached RON55 million.

The difference between the second half this year and the results seen in 2007 comes from the fact that foreign investors were less active in recent years.

Another explanation for the apathy seen in the market comes from Romania's poor macroeconomic performance, lacking firm policies for crisis management, as well as the inefficient economic and administrative policies applied over the past 20 years, brokers said.

"An improved predictability on the conditions of agreements concluded with the International Monetary Fund, including the one that will be signed in 2011, will be the main barometer used by investors when they decide their exposure in Romania," Caruntu added.

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