Romanian stock exchange's next target is MSCI upgrade

Romanian stock exchange's next target is MSCI upgrade
By Iulian Ernst in Bucharest September 23, 2020

Romania needs to aim for an MSCI upgrade because more than 80% of passive funds invest in emerging markets through the MSCI benchmark, said Mark Davis, the EBRD's regional director for Romania and Bulgaria, to Bursa daily — one day after the Bucharest Stock Exchange (BVB) was upgraded by FTSE Russell to the emerging market category.

“We must also aim to the MSCI upgrade as over 80% of passive funds in emerging markets make investments through the MSCI benchmark. I would also like to emphasise the importance of developing products such as short-term marketable instruments in the form of commercial paper. These can be very useful tools in times of high uncertainty, and this is what we are planning in the Baltic countries and we are ready to promote in Romania as well," said Davis.

The Bucharest exchange is currently classified as a frontier market by index provider MSCI, but is working to secure an upgrade to emerging market status, which is typically followed by a hike in investment.

In its Global Market Accessibility Review in mid-2018, MSCI upgraded Romania’s accessibility criteria on three notes: market regulation, information flow and trading. The move came after FTSE Russell had retained Romania on its watch list as a frontier market, and since then the country’s exchange has already been placed on FTSE’s emerging markets list.

According to Davis, Romania’s upgrade is an important achievement but it is equally important to maintain momentum.

“Both IPOs from private companies and state-owned companies are needed and the EBRD is ready to invest, prepare and I welcome the future strategy for the development of Romanian capital markets [announced as being prepared by the Ministry of Finance and the financial market regulator ASF] and again the EBRD is ready to support our colleagues in the OECD and Romanian counterparts through our experience in Poland, Greece and the Baltic countries," Davis said.

In this context, the EBRD official said that two emerging global trends are noteworthy, Firstly, the increased passive investment — $2.8 trillion in the US. And secondly, investment in environmentally friendly assets and companies, where allocations range from hundreds of billions to trillions.

As regards the later, Davis mentioned the Bucharest Stock Exchange’s initiative to venture into an Environmental and Social Governance (ESG) project.

BVB launched the first ESG-focused initiative on the Romanian capital market in mid-September, which aims to provide high-level ESG insights for BVB-listed companies.

Utilizing Sustainalytics’ ESG Risk Ratings, BVB’s goal is to make available top-line ESG research and ratings for the majority of companies listed on its exchange, to promote responsible investing and highlight the importance of ESG standards among Romanian market participants. The initiative also aims to encourage local companies to align their business strategies with ESG practices, which have witnessed spectacular growth globally in recent years.

“We have noticed similar efforts in more developed markets such as Warsaw and London and they are bearing fruit,” the EBRD official commented.