Massive Declines in BET - Nearly All Stocks Recorded Losses

The indices of the Bucharest Stock Exchange (BVB) experienced significant declines in the second half of last year, amid the election period, parliamentary elections, and the annulment of the first round of the presidential elections. The BET index, which includes the 20 most liquid stocks in the market, dropped by 8.3% to 16,721 points, while the BET-BK index, the benchmark for the performance of equity investment funds, fell by 7.4% to 3,139 points.

• Significant Gains for U.S. Indices, in Contrast to a Slight Decline in Europe

In the United States, indices saw strong gains, reaching new all-time highs, as the Federal Reserve began easing monetary policy, the U.S. economy exceeded expectations, and optimism around artificial intelligence supported Big Tech stock prices. Additionally, Donald Trump won the presidential election, and investors perceived his agenda, which included potential tax cuts and deregulation, as favorable for business and corporate growth.

In this context, the S&P 500 rose by 7.7% in the second half of last year, while the Dow Jones Industrial Average increased by 8.8%. The Nasdaq Composite, which includes knowledge-intensive sector companies, gained nearly 9%.

On the other side of the Atlantic, where the European Central Bank cut interest rates three times in the second half of last year, economies struggled, and the political landscape was marked by the rise of extremist movements, the Stoxx 600 index declined by 0.7%. Meanwhile, Germany's DAX rose by 9.2%, and in London, the FTSE index saw a modest 0.1% increase in the last quarter of the year.

• 7.1% Decline for the BET-XT Index

At the Bucharest Stock Exchange, the BET-XT index, which tracks the 30 most liquid stocks in the market, fell by 7.1% in the second half of the year, contrasting with the performance of Western markets, indicating that local factors contributed to the decline in stock prices.

The election period culminated in the annulment of the first round of the presidential election by the Constitutional Court, which had been won by far-right populist candidate Călin Georgescu. His pro-Russian rhetoric raised concerns among investors regarding Romania's European and NATO prospects. According to official statements, the court's decision followed the declassification of intelligence service documents revealing foreign state and non-state actors' involvement in Georgescu's campaign, along with undisclosed sources of funding. However, no direct evidence of foreign state actor involvement has been presented so far.

Fitch downgraded Romania's outlook to negative, citing political uncertainty, which is expected to significantly impact fiscal consolidation, a budget deficit exceeding 8% last year, and weak economic growth.

All these factors, along with expectations of potential tax changes, likely prompted foreign institutional investors to reassess their outlook on Romania.

• Transport Trade Services, One United Properties, and Fondul Proprietatea - The Biggest Declines in BET

Nineteen of the twenty companies in the BET index saw declines in the second half of last year, with the biggest drops recorded by Transport Trade Services, One United Properties, and Fondul Proprietatea.

Shares of Transport Trade Services, a freight carrier on the Danube, plummeted by 43.5%, marking the biggest decline in the market's main stock basket. The company had benefited from the Ukraine conflict, which massively boosted its revenues and profits, but activity has now normalized, returning to pre-war levels. In Q3, TTS reported a loss compared to a profit in the same period the previous year.

One United Properties, a real estate developer, saw its stock drop by 35.4% in the second half of 2024, despite reporting improved profitability. Factors contributing to the decline may include corporate actions that undermined investor confidence, uncertainty regarding fiscal policies, the Nordis scandal, which likely affected the entire construction sector, and a series of unfavorable press articles.

Fondul Proprietatea's shares fell by 20.2% in the second half of the year as the fund lost relevance after selling its stake in Hidroelectrica. Pension funds significantly reduced their holdings in the company, while the Ministry of Finance pressured FP to stop distributing dividends and selling portfolio assets. Additionally, Franklin Templeton, the fund's manager, announced it would not seek another mandate at FP's helm.

• 7.3% Decline for OMV Petrom; Consolidation for Hidroelectrica Stocks

OMV Petrom, the oil and gas producer, saw its stock decline by 7.3% in the second half of last year, amid a slight drop in global crude oil prices. The company has committed to a growing dividend policy, making it attractive for long-term buy-and-hold investors. In contrast, Romgaz, OMV Petrom's partner in the Neptun Deep project, only distributed 20% of its profit as dividends last year, compared to full distributions in previous years. With significant investment needs, large dividend allocations seem unlikely next year. In fact, Romgaz's shares fell by 13.8% in the second half of 2024, and the company issued euro500 million in bonds to finance its investments.

Hidroelectrica, a defensive company with stable dividend distributions, remained in a consolidation phase in the last six months of the year, while Nuclearelectrica's stock declined by 9.1%. The Cernavodă nuclear plant operator has major upcoming investments, including the construction of reactors 3 and 4, leading analysts to anticipate lower dividend payout ratios compared to past years.

• Declines in Utility Stocks

Utility stocks suffered losses, with Electrica's shares dropping by 15.2% in the second half of the year, while Transelectrica declined by 10%. Electrica's poor Q2 results likely played a role, as the company reported a loss of 25.6 million lei compared to a 185.4 million lei profit in the same period the previous year. This was mainly due to significant losses in its supply segment and higher negative financial results. Meanwhile, Transelectrica saw a decrease in regulated tariffs for its system services.

• Sphera - the Only BET Stock on the Rise

Banca Transilvania's shares depreciated by 3.1% in the last six months of the past year, while BRD-Groupe Societe Generale's shares fell by 10.8%. The difference was likely due to the financial performance of the two credit institutions. The bank from Cluj reported an almost 150% increase in net profit for the third quarter, largely due to the reflection of the OTP Bank Romania acquisition in its financial statements, as well as its operational activity. Meanwhile, BRD's profitability declined due to net risk costs and the "turnover tax."

Sphera Franchise Group's shares rose by 6.6% in the second half of last year, making them the only BET-listed stocks to grow in the latter half of 2024. The company is experiencing growth, expanding its operations, and has caught the attention of private pension funds, which have consistently increased their holdings in Sphera's capital in recent months.

• Trading Discounts Between 69% for Infinity Capital Investments and 42% for Longshield Investment

The BET-FI index, which includes former SIFs and Fondul Proprietatea, rose by 5.4%, making it the only stock basket on the BVB to appreciate in the second half of last year. This was driven by increases in Longshield Investments Group and Infinity Capital Investments shares (formerly SIF Muntenia and SIF Oltenia), which appreciated by 26.9% and 22.8%, respectively. Longshield's growth can be attributed to the company launching a public offer at a price above the market value. However, these issuers have largely fallen off the radar of institutional and retail investors.

At the end of December, SIFs were trading at discounts between market price and Net Asset Value per Share (VUAN), ranging from 69% for Infinity Capital Investments to 42% for Longshield Investment. For FP, the discount stood at 55%, well above Franklin Templeton's target of below 15%.

• JT Grup Oil Debuts on AeRO; Green Tech International Conducts Public Offering Ahead of BVB Listing

The Ministry of Finance raised nearly 6.7 billion lei (approximately 1.35 billion euros) through two Fidelis government bond issuances in the second quarter of last year.

Fuel distributor JT Grup Oil debuted on the AeRO Market, while Green Tech International, a group specializing in ecological heat supply for various clients, conducted a public offering and is set to be listed on the BVB.

The BETAeRO index, which tracks companies relevant to our stock exchange's Multilateral Trading System, fell by 17.5% in the second half of the year-the biggest drop among BVB indices. This decline came as many issuers' results disappointed investors, and most major companies transitioned to the Regulated Market.

Read Debt, deficit, political instability: Fitch revises Romania's outlook to negative