(Bloomberg) -- Romania’s stock market is becoming one of Europe’s star performers, with investors upbeat about the rally running further as more companies are expected to go public.
Bucharest’s BET stock index has returned nearly 40% in dollar terms over the past 12 months, the fifth-best performance among more than 90 primary equity indexes tracked by Bloomberg. Even after a wobble in August the gauge stands within striking distance of its record high, having advanced for 13 out of the last 15 months.
Last year’s $1.8 billion initial public offering by renewable-power utility Hidroelectrica SA brought more foreign investors to Romania. This in turn helped revive local interest in the bourse, boosting valuations and trading volumes — although the latter remain low by international standards.
“The fundamental drivers are there to keep the Romanian market performing well,” said Andrei Nedelcu, chief investment officer at SAI Erste Asset Management Romania, one of the country’s biggest investment funds. Future IPOs are expected to “sustain this momentum,” he said.
While Romania’s traditionally fast growing economy has slowed, it’s set to revive, helped by interest-rate cuts and a moderation in price growth. The improving macro outlook is combined with bets that the east European equity market will be upgraded by MSCI — perhaps as soon as next year — to an emerging market from its current frontier status.
Adrian Tanase, the chief executive officer of Bursa de Valori Bucuresti SA, which operates the Bucharest Stock Exchange, told Bloomberg that Romania “sits very well” in terms of MSCI’s market accessibility criteria for international investors and has the required number of listed companies needed for an upgrade. However, it still needs to meet liquidity requirements, he said.
Attila Gyurcsik, the CEO of Budapest-based Accorde Fund Management, said that MSCI usually upgrades markets during its summer review, meaning the next likely opportunity for Bucharest will come around the middle of next year.
Interestingly, Hidroelectrica’s shares have advanced only 11% in dollars over the past 12 months, meaning that Bucharest’s other stocks are leading the charge. The BET now has the same price-to-equity valuation as MSCI’s emerging-market benchmark index, while eastern Europe’s largest stock market in Warsaw trades with a roughly 30% discount.
Dan Popovici, the CEO of OTP Asset Management Romania, whose firm’s equity fund has beaten 97% of its peers in 2024, said the valuations boom is “sustainable.” He’s betting on Romanian banking stocks to perform well and said that upbeat retail sales are pointing to an ongoing economic pickup. A Bloomberg survey of economists shows gross domestic product expanding 3.5% in 2025, up from 2.7% this year.
The rich valuations come even as investors are keeping an eye on general and presidential elections in December, as well as how the government plans to reduce one of the European Union’s widest budget deficits.
Nevertheless, the mood in Bucharest is upbeat following last year’s IPO, especially as Romania is considering selling stakes in other companies, such as the Bucharest airport authority. Meanwhile, the local bourse is planning to launch derivatives trading, in both stocks and the equities benchmark as well as electricity, by mid 2025.
“The upgrade to emerging-market status by MSCI would increase Romania’s presence on the international investment map and would bring additional inflows,” bourse CEO Tanase said. This would benefit “the entire market,” he said.
--With assistance from Irina Vilcu and Andra Timu.
©2024 Bloomberg L.P.
