Romania’s stock exchange marked the strongest advance in Europe in January-February, “holding [its] ground against one of the largest falls the US markets had experienced in a decade”, the Bucharest Stock Exchange (BVB) announced in a press release on March 6. The main BET index rose by 9% and the trading value over the two-month period surged impressively by 55% y/y, the bullish press release reads.

Despite the significant advance marked by Romania’s stock exchange over the past years (particularly due to several IPOs of state-controlled companies but also thanks to private companies floating their shares), the performance in January-February is visibly above the medium-term potential since it was partly driven by the high payout ratios requested by the government from state-controlled firms and by the share repurchase campaign carried out the restitution fund Fondul Proprietatea (FP). The 6.9% p.a. gain (expressed in euros) achieved over the past five years is closer to the fundamentals.

Filtering out FP’s operations, the value of the trades in January-February increased by only 12% y/y, according to Bursa daily, which also toned down in a comment the excessive optimism expressed in BVB’s release.  

“The growth rates earlier this year came as listed companies announced strong financial results and significant dividends,” the BVB admitted.

Indeed, key companies like OMV Petrom, Banca Transilvania and Romgaz reported robust profits and the government keeps advocating for keeping the dividend payout ratio at above 90% (as it was the case last year) — a decision that propelled Romanian utilities companies in which the government still holds significant stakes during the first half of 2017 as well.

However, data show that Romania’s market index performed below the benchmarks of the mature markets (S&P500, DAX) in the longer term while other emerging markets in the region performed better in the short term.

Thus, while the Romanian BET index, expressed in euros, increased by 3.4% y/y as of March 6, the Polish WIG expressed in euros advanced by 7.5% y/y. The indices performed more modestly in other European countries (+1.3% y/y for Germany’s DAX, for example) and even declined in the US (-2.0% y/y for S&P500 expressed in euros). 

In the longer term, BET has advanced at an average annual rate of 6.9% y/y over the past five years, compared to the 8.7% annual advance of DAX and the more impressive 13% annual advance of the S&P500 (expressed in euros). The Polish WIG expressed in euros marked a less impressive annual advance of 5.1% over the past year. However, over a 10-year period, WIG gained a modest but positive 8%, while Romania’s BET still lags more than 20% behind the pre-crisis level one decade ago.