BVB in 2025: between political uncertainties and budget deficit pressure

The year 2025 is shaping up to be difficult for investors on the Bucharest Stock Exchange (BVB), with the major budget deficit of our country, which must be reduced through fiscal measures with a possible impact on companies, the economic slowdown, the revision of the country's rating outlook by Fitch, and the presidential elections that will be resumed after the cancellation of the first round last year, according to brokers and market analysts.

Thus, it is expected that politics will play a very important role in the stock market evolution, through a broad fiscal reform, a first stage being the so-called "austerity ordinance", adopted by the Government at the end of last year. The ordinance provides, among other things, for the increase in the dividend tax from 8% to 10% and the reintroduction of the "pillar tax", a measure that has already been modified from its initial form and for which implementation norms are to be developed, after consultations with representatives of the industries on which the tax may have effects, according to statements by the Minister of Finance, Tanczos Barna.

• Florian Munteanu: "For several years, Romania has been heading towards the wall with acceleration at the floor"

Florian Munteanu, an investment consultant with extensive experience in finance and energy, sees a "hot" year for investors at the Bucharest Stock Exchange.

"First of all, from a macro point of view we have a completely unsustainable budget. In my opinion, for several years, Romania has been heading towards the wall with acceleration at the floor, and 2024 ended with a deficit of around 8%. Unfortunately, it is not about investments, but about increasing pensions and salaries, things that can be cut very difficultly and at very high social costs. In fact, the Fitch rating reflects these concerns at the international level as well," Florian Munteanu told us.

The rating agency Fitch Ratings revised, in December, the outlook of Romania's long-term foreign currency credit rating from "stable" to "negative" and maintained the rating at "BBB-", thus bringing our country just one step away from the "not recommended for investment" category.

"Secondly, there is a political risk. We see a rise of sovereignist parties that we do not know where it will stop, and the fact that the new president has not yet been elected increases the lack of predictability. I think that stopping the elections may have very big implications, which have not been felt so far because it was an unprecedented decision and difficult to interpret in a democratic context. But, we do not know how things will evolve and how much the current context will accentuate certain dissatisfactions in society", Florian Munteanu pointed out, adding: "Of course, all these things can greatly affect the Bucharest Stock Exchange in 2025, which is shaping up to be a very hot year".

• Adrian Mitroi: "The central bank, democracy and politics all have pro-cyclical approaches; the only counter-cyclicality comes from inflation"

Adrian Mitroi, CFA analyst and professor of behavioral finance, believes that our country's economy is on an accelerated downward trajectory, which will affect the profitability of BVB companies and their potential to grant dividends.

The analyst told us: "The last weeks of last year were disastrous in Romania. We are operating in a political drama in which politicians demonstrate that they have not the slightest concern for the future of the country. It is only about them and their inability to make the necessary compromises. However, the country's recent politics cannot help but be seen seriously in the economy, which is on an accelerating downward trend. At least for now, we will take everything recessionary - high interest rates, high inflation, etc. - a very brutal recessionary stagflation. We have a budget deficit of 8%, a structural deficit of 4-5% and a current account deficit of 6%. It is a cocktail that can only be solved through inflation".

Adrian Mitroi added: "The central bank, democracy and politics all have pro-cyclical approaches, both from a fiscal and monetary point of view. The only counter-cyclicality comes from the "silent" inflation which, unfortunately, has to extract all the purchasing power accumulated from the net income increases of recent years. It is an imported inflation, imposed by the technological hyper-competitiveness of the United States and China. Trump will not play with tariffs and will impose a very tough cold trade war, which will hit European economic growth and probably, partially, Asian growth".

"There is no favorable argument for us", says the behavioral finance professor, who believes that even high-yield dividends will probably no longer represent an asset for our market after this year. "It doesn't work anymore! Those were in line with economic growth, but they will no longer have traction. The profitability of companies will be crushed (...)", according to the CFA analyst.

In his opinion, mixed stock-bond portfolios will probably have slightly positive returns at the end of the year, which is unsatisfactory for the Romanian investor. "I am long (n.r. in the sense that I am betting on growth) on Romanian bonds and neutral to negative on Romanian stocks", pointed out Adrian Mitroi.

• Dragoş Mesaroş: "I expect BET to end 2025 somewhere between -5% and, in a very optimistic scenario, at most +10%"

Dragoş Mesaroş, trading director of brokerage house Goldring, also believes that 2025 will be a difficult year for investors on the Bucharest Stock Exchange.

"I expect companies' results to be down compared to 2024. It is possible that the price of electricity will still positively influence Hidroelectrica's results, but I do not expect oil price increases. I do not think that interest rates will fall very quickly, because I expect inflation to increase in the first half of the year, following the increase in some taxes. Interest rates are still high, which could bring banks quite good margins," Dragoş Mesaroş told us.

In the first week of the year, the interim leader of the PNL, Ilie Bolojan, declared that if the state's operating expenses are not reduced by eliminating waste, it is only a matter of time "until taxes will have to be increased." On the other hand, the finance minister declared that the budget will be implemented without tax increases, according to the press.

Dragoş Mesaroş expects the dividend allocations of companies majority owned by the state to remain quite high this year, because the state needs money to finance the budget deficit. "The state will demand a large part of the profit from the companies it controls, perhaps with the exception of those that have to make very large investments, such as Romgaz," says the broker. "I do not think we will have an evolution like the one in 2023 and the first part of 2024. I expect BET to end 2025 somewhere between -5% and, in a very optimistic scenario, at most +10%," concluded Dragoş Mesaroş.

• Marcel Murgoci: "Until the new president is elected, I think there will be many more meetings with high volatility"

Marcel Murgoci, the chief operating officer of brokerage firm Estinvest, recalls that companies majority owned by the state must distribute at least half of their profits as dividends, but there are situations in which, justified by large investment plans, allocations can be reduced.

"Here we can consider Romgaz, which has the Neptun Deep project. Also Nuclearelectrica, a company for which several years of considerable investments are ahead in the retrofitting of reactor 1, in the mini-reactor project at Doiceşti and the construction of reactors 3 and 4, in the longer term. On the other hand, Hidroelectrica does not seem to be in such a situation, in the sense that it does not have to make such large investments. Everything depends on the position of the state, which, on the one hand, considering the pressure on the budget, is trying to attract as much revenue as possible and, on the other hand, on its willingness to understand and agree with the investment needs of companies", Marcel Murgoci told us.

There are also companies that have a clear dividend policy, such as OMV Petrom, which has assumed the distribution of an increasing dividend and may also have a special allocation, the director of Estinvest also says.

According to its policy, the oil and gas producer has the objective of increasing its basic dividend per share by 5% - 10% per year until 2030 and may offer special dividends, with total distributions to be on average about 50% of the cash flows from operating activities.

"Banca Transilvania's results in the first nine months (last year's ed.) were very good and the bank will probably continue its policy of dividends plus free shares, but it remains to be seen what percentage of the profit it will pay as a dividend. This is because, as I was saying, a difficult year is ahead in which the appetite for loans may decrease, and the bank must have the necessary resources to mitigate a possible major negative impact," says the broker.

• "We hope to see larger company listings than in 2024; we also hope for the launch of the derivatives market," Marcel Murgoci told us

Regarding price developments, the director of Estinvest anticipates volatility in the first months of the year. "The market is still sensitive to information that appears in relation to the government's activity (...) Until things are clarified regarding the economic measures that will be implemented and until the new president is elected, I think there will still be meetings with high volatility, because we are still in a transition period," Marcel Murgoci pointed out.

Last but not least, the broker from Estinvest hopes that this year there will be listings on the BVB of larger companies than in 2024 and the launch of the derivatives market.

• Marius Pandele: "Expectations regarding the evolution of the Romanian economy cannot be too high, but this does not necessarily mean that listed stocks cannot have a good year"

There are all the premises for stocks on the Bucharest Stock Exchange to have even greater volatility this year compared to the end of 2024, believes Marius Pandele, an analyst at the brokerage company Prime Transaction.

In his opinion, the most important event of the year is the assumption, again after eight years, of the presidency of the United States by Donald Trump. "We already know that Trump is very attentive to the evolution of the stock market, so his mandate should be friendly to the capital markets and abound in measures to stimulate stock market growth," the analyst wrote in his latest editorial, published on the Prime website.

For the evolution of our country, the presidential elections are of paramount importance, believes Marius Pandele. "There is no point in thinking about what a possible victory of an extremist candidate, no matter who he is, would entail. Beyond the possible measures against the national interest such as moving away from the European Union and/or NATO, which would bring catastrophic effects, from the first moment there would be a dramatic decrease in confidence in our country, significant private investments would be lost (and those of Romanians, not just foreigners), the national currency would depreciate, and the cost of loans would increase, all of which would cause a chain reaction," the analyst pointed out.

Marius Pandele added: "The recently legislated measures contain the seeds of an economic setback in the coming period, and for some of the issuers on the BVB they could have a disproportionate impact (especially in the case of the pillar tax, reinvented after being abandoned a few years ago). The even bigger problem is that these measures are insufficient to cover the budget holes, and postponing the measures to reduce public spending will only increase the impact they will have when, finally, they are implemented. One thing is certain, things will not improve by themselves, as we could see during Romania's last agreement with the International Monetary Fund.

• "Rigorous analysis of the fundamentals of each individual issuer can make the difference between a modest and a very good performance," says Marius Pandele

According to the analyst, expectations regarding the evolution of the Romanian economy cannot be too high for the current year, but this does not necessarily mean that listed stocks cannot have a good year.

"Rigorous analysis of the fundamentals of each individual issuer can make the difference between a modest and a very good performance, even in periods when things are not going very well for the market as a whole. In the current context, it is all the more important to take into account the effects of tax changes for issuers, as these will be disproportionate in certain areas. There is, of course, also the option that Donald Trump will do us a favor, either by brokering a ceasefire in Ukraine or through expansionary economic policies, and the effects will also be transmitted to the capital market in Bucharest. But, in such a situation, the gain would be short-term, with economic fundamentals sooner or later pulling stock prices in the right direction," concluded the Prime analyst.

From the end of last year until the beginning of this week, the BET index increased by about 1.5%.