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bne June 2021 Companies & Markets I 13
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Bucharest Stock Exchange sets new records as it shrugs off the coronacrisis
Clare Nuttall in Glasgow
The Bucharest Stock Exchange (BVB) has been setting record after record in recent months. Not only has its main index, the BET, soared past its peak before the global financial crisis to reach a new all-time high, there has also been intense activity on AoRO, the dedicated market for smaller companies that has seen a string of new listings and bond issues. The chairman of the board of the BVB, Radu Hanga, talked to bne IntelliNews about the reasons behind the surge in activity.
In April, the BET exceeded the threshold of 11,000 points for the first time in the exchange’s 23-year history, and has continued to rise, peaking at over 11,700 on May 12 and remaining over 11,600 since then. The BET-TR, which includes dividends,
has also set new records. In the first three months of 2021, the two indices soared by 14% and over 12 months the BET rose by 46.7% and BET-TR by 54.4%. The value of transactions with all types of financial instruments increased by 30.4% at the end of the first three months of 2021 compared to the same period last year, according to bourse data.
This followed record levels of activity in 2020, when investors traded financial instruments amounting to RON18.3bn (€3.77bn), up by almost 25% on 2007, the previous high.
Looking at the reasons for the strong performance, one is the Romanian capital market’s upgrade by FTSE Russel to emerging market status. In September 2020, the BVB held its first session as an emerging market, which put it into the universe targeted by a wider category of investors, namely emerging markets funds that together have billions of euros under management.
“The upgrade to emerging market status is one factor which increased the visibility of the market for foreign investors,” says Hanga.
“On the other hand we have the local ecosystem with higher liquidity and lower interest rates, which creates attractiveness for alternative investments like the Bucharest Stock Exchange.”
Radu Hanga, chairman of the board of the Bucharest Stock Exchange.
He explains: “There is an excess of liquidity in the market coupled with very low financing costs. If you look at the banking sector, lending is growing but at a slower rate compared to the deposit base. In Romania, we see banks accumulating cash in deposits, a low interest rate for deposits, and a decline in the loan to deposit ratio.” That has allowed banks to be more selective in picking solvent companies that are well capitalised to lend to.
“Here we come into the picture as exactly the channel that feeds capital into companies. The local financial sector is developing now, standing not only on bank financing but also on the capital market,” adds Hanga.
This is part of a global trend, and markets around the world have continued to rise since the “vaccine bump” last autumn, when breakthroughs by major pharma companies indicated the end of the coronavirus (COVID-19) pandemic had come
a bit closer. However, BVB was the first of the stock exchanges in the eastern EU member states whose main index (not including dividends) outperformed the boom years before the previous crisis.
There’s a virtuous circle as the current high valuations of companies on the BVB make the market more attractive for other companies. “Of course companies are now looking
at the stock exchange as a financing route in connection to the valuations they expect. Now we have quite interesting valuations that increase our visibility and attractiveness as a financing route,” Hanga says, reporting a strong pipeline of companies at various stages of addressing both the main market and AeRO.
The biggest IPO in the pipeline is that of state-controlled hydropower company Hidroelectrica. Anticipated for years and put back multiple times, the latest from the company’s management is that Hidroelectrica will launch on the exchange potentially as soon as the end of this year. Given the sheer size of the company – its market value is estimated by minority shareholder Fondul Proprietatea at over €5bn – this is an important event for the Romanian capital market.
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