Apathy at the BSE before the elections: what do brokers expect?

The share market in our country is going through a period of apathy, which is reflected by reduced trading volumes and by the evolution of prices, which, since the beginning of September, have developed a lateral movement, in contrast to the dynamics of many western stock exchanges, which continue their upward trend started in the first part of last year.

The BET index, of the twenty most liquid securities from the Bucharest Stock Exchange (BVB), ended the trading session on September 29 at 17,504 points, almost 7% below the historical record reached on July 18, of 18,749 of points, with our market's main basket of stocks failing to recover the fall caused by the shock in global markets in early August. On the other hand, in the United States the S&P 500 index recently hit a new all-time high, while the pan-European Stoxx 600 index has fully recovered from its summer decline, suggesting that our market's decline has internal causes.

• Marcel Murgoci, Estinvest: "Elections are coming, which is why investors are waiting"

Marcel Murgoci, the director of operations of Estinvest, sees the elections in our country as the main reason that explains the reduced activity at the Bucharest Stock Exchange lately.

The broker told us: "For about two months, sessions with poor to very poor liquidity have been observed, which has an effect on share prices. I think that this apathy of the market was determined by the speculations that are made in the public space related to some fiscal measures that could appear with the installation of the new government, with an impact on the prospects of the Romanian economy in the coming years. Elections are coming up, and that's probably why investors are on the lookout. But these things will probably become clear after the new government is installed."

The first round of the presidential elections will be on November 24, followed by the parliamentary elections on December 1 and the second round of the presidential elections on December 8. Very likely, the new government will be installed at Victoria Palace by the end of the year.

According to the director of Estinvest, the closest element that can dynamize our stock market is represented by the financial results of the companies for the third quarter, respectively the first nine months of the year. "We see this in the case of OMV Petrom where the publication of the results generated an increase in the share price", said Marcel Murgoci.

• Dragoş Mesaroş: "Evoluţia din acest an a pieţei noastre este peste aşteptări"

Dragoş Mesaroş, directorul de tranzacţionare al casei de brokeraj Goldring, atrage atenţia asupra aprecierii de la BVB pe o perioadă mai îndelungată. "Evoluţia din acest an a pieţei noastre este peste aşteptări. Până acum indicele BET-TR are o creştere de 21-22%, după ce anul trecut a avut o creştere de aproape 40%. Suntem în topul burselor din Europa", ne-a spus brokerul.

Printre acţiunile remarcate de directorul de la Goldring se numără Banca Transilvania, cu o creştere de 32% în acest an, BRD cu plus 16%, OMV Petrom - 28%, MedLife - 49%, Aquila - 54%, Digi Communications - 48% sau Sphera Franchise Group - 57%. "Cât am putea spera, ca investitori, să facem în piaţa de capital?", se întreabă oarecum retoric Dragoş Mesaroş.

Apathy at the BSE before the elections: what do brokers expect?

• "Some investors probably preferred the safety of government bonds, especially as the elections are coming," according to the Goldring director

The still high inflation and the large deficits of our country are among the causes that explain the weaker evolution of the shares of the Bucharest Stock Exchange in the last years, believes Dragoş Mesaroş.

"Really, lately we have become uncorrelated with foreign markets, but we have to take into account the fact that, if in Europe inflation dropped to 1.7% (n.r. in September), in the United States it dropped to 2.1 %, while here, even if it is decreasing, it is still high, at 4.6%. We also have large deficits that may raise concerns among investors about how they will be covered. It could be from fees and taxes affecting the profits of listed companies," the Goldring executive told us.

In addition, Dragoş Mesaroş points out that we are at the beginning of the financial reporting season for the third quarter at BVB, so some investors are waiting for the results of the companies to make an investment decision. "We also have issues of Fidelis government bonds, with 7% interest at five-year maturities. There are probably investors who preferred the safety of government bonds, especially since the elections are coming. Why turn down a safe and tax-free 7% gain when there is the risk of market volatility?" added the Goldring director.

• "It is important that there are no changes in fees and taxes that affect the profitability of companies", says Dragoş Mesaroş

Dividends that companies can pay and the lack of changes in taxes affecting the profitability of companies are the main domestic elements that can print an upward movement in BSE shares in the coming months, according to the broker.

"Listed companies must come before investors with positive results. The reports for the first nine months are very important because they paint a picture of the dividends that the main companies on the BSE are likely to pay from this year's profits. Then it is important that there are no changes in fees and taxes next year that affect the profitability of the issuers. In addition to the fact that it reduces the possibility of granting dividends, high taxes also decrease the investment potential and implicitly the growth of companies, concluded Dragoş Mesaroş.

• Alin Brendea: "Increasing uncertainty blocks the making of investment decisions"

Alin Brendea, the operations director of the Prime Transaction brokerage house, characterizes the recent period of apathy at BVB as "a stock market reflex specific to election periods".

The broker wrote in a report published last week: "Inevitably, political elections induce a state of uncertainty in the market, which is largely normal because the political message resets every four years. Politicians try to convince voters by proposing changes (...). Many scenarios of economic measures are circulated that may affect various economic sectors or the economy as a whole".

According to Prime's executive, the uncertainty is stalling the market because the stock market operates on valuations. "Increasing uncertainty in the market tends to drive trading prices lower and blocks investment decision-making. It's what any pre-election period tends to produce in the market. Incidentally, this is what we see this year as well. It is the main explanation for the stagnant nature of the local market. Are we living in an exception? No, this also happened in 2020 and in 2016 and in 2012," says Alin Brendea.

• "The growth trends of the market stopped about three months before the date of the elections, in the second half of the election years", according to the director of Prime

The broker analyzed the performance of our market around the last three rounds of parliamentary elections, identifying a pattern that the stock market followed each time.

"In the second half of the election years, the growth trends on which the market was placed stopped about three months before the date of the elections. During these periods, the market developments were sideways with a slight tendency to correct the stock market quotations against a background of rather modest liquidity. Towards election time, the market starts to recover as the period of uncertainty comes to an end and investors' calculations can once again return investment decisions. Regardless of the outcome of the political contest, a final verdict, whatever it may be, tends to be better than a period of uncertainty. This is also confirmed by the fact that after six months and after a year, invariably, the market has registered significant appreciations".

• "We have no reason to be more pessimistic than six months ago," says Brendea

The evolution of our market in recent weeks represents a kind of conservation reflex in the face of a possible informational update with economic impact measures, generated by changes in the parliamentary political structure, the director of Prime Transaction also pointed out.

"When we have a new government team with a new approved government program, the market will get rid of this ballast. Surely, she will anticipate this outcome as we approach December 1st (...). We have no reason to be more pessimistic than we were six months ago. Market dynamics will certainly change towards the end of the year. And if we look at the statistics, the first year after the elections tends to be really positive. With foreign markets at new highs, with a season of financial reporting that could bring solid results and with capital becoming cheaper for actors in the economy, I think we should trust the statistics", concluded Alin Brendea.

According to Prime Transaction, after the first half of the year following the parliamentary elections in 2020, the BET index had an increase of 24% and 36% respectively at the end of 2021. In the case of the 2016 elections, the increase until the end of the following year, respectively December 2017, it was 14%, while in the case of the 2012 elections, the appreciation of the index rose to 10% in June 2013 and 36% in December 2013.