Stock market year 2023 - among the best in BVB history

With a nominal increase of the main indices of over 30% and the listing of Hidroelectrica, which increased the chances of our capital market becoming truly emerging, the year 2023 was one of the best in the modern history of the Bucharest Stock Exchange (BVB).

The BET index, which captures the evolution of the twenty most liquid securities of our market, had an increase of 31.8% last year, while with all dividends, the appreciation of the share basket, reflected by the evolution of BET-TR, raised to 39.9%, both indices marking new historical records. BET-BK, the performance benchmark for equity mutual funds, climbed 31%, while the BET-FI financial index, which has lost much of its prominence more than a decade ago, had a growth of almost 18% last year.

• Marcel Murgoci, Estinvest: "Hidroelectrica has proven that the listing of important issuers favors the attraction of liquidity and new investors"

Brokers point in unison to the listing of Hidroelectrica as the main domestic vector of the evolution of our stock market, in an international context favorable to the stock markets.

Marcel Murgoci, the director of operations of the Estinvest brokerage, told us: "Probably, in December 2022, few analysts predicted such an increase in the BET index for 2023. I think that the main event that favored the rally of the index in the second part of the year was the listing of Hidroelectrica. It is proof that the listing of major issuers favors attracting liquidity and new investors to the market. Also, the prospect of MSCI upgrading our market to emerging market status was probably the driver of the accelerated growth in the fall."

Hidroelectrica debuted on the Bucharest Stock Exchange on July 12, after the largest offer in the history of our capital market, through which Fondul Proprietatea sold almost 20% of the energy producer, over nine billion lei being subsequently distributed as dividends to FP shareholders.

Dragoş Mesaroş, the trading director of the brokerage company Goldring, told us: "After a first half year with a lateral movement and very small volumes, with the listing of Hidroelectrica it was as if we had another market. A lot of money entered the market, including through the special dividend paid by Fondul Proprietatea and the redemption offer concluded in December, which was seen - in the last six months of the year, the shares of most companies in BET had explosive growth. And the general context helped - almost all the major stock markets had quite large increases."

Last year, inflation in the United States and Europe decelerated significantly, central banks signaled the end of the monetary tightening cycle, and worst-case scenarios for economies did not materialize. In this context, the S&P 500 index rose by 24.2%, while the Nasdaq Composite appreciated by 43.4%. On our side of the Atlantic, the pan-European Stoxx 600 index rose 12.7%, while the DAX40 index of the Frankfurt Stock Exchange advanced 20.3% last year.

• Alin Brendea: "The combination of low economic expectations - controlled inflation without causing a recession was the vector of stock market growth"

Alin Brendea, the operations director of the Prime Transaction brokerage house, points out that last year the stock market was the only investment market that ensured certain positive real returns.

The broker wrote, in his last editorial: "The year 2023 marked a good period for the stock markets, which is also evident for the local stock exchange. At the end of the year we leave the markets in the area of historical or at least annual highs. To be objective, we should adjust this nominal increase with the "devoured" inflation percentage, which is not negligible. Even so, the increases are remarkable. The combination of low economic expectations - contained inflation without causing recession was the vector of this growth".

Inflation, measured by the Consumer Price Index, decreased in 2023 from 14.5% at the end of the first quarter to 8.8% in the third quarter, and for the end of the year the BNR forecasts an inflation of 7.5%. Transilvania Bank analysts estimated, in the last report, an average annual dynamic of consumer prices (based on the harmonized EU index) of 9.8%, for the past year. In the euro area, the European Central Bank estimated an average inflation rate of 5.6% for 2023.

Alin Brendea added: "We can say that the evolution of the stock market quotes even exceeded the optimistic scenarios. In this context, in 2023, the stock market was the only investment market that provided certain positive real returns (higher than inflation). It is a reality that has led to a growing interest in stock market investing. Since the Romanian market appreciated by about 30% more than the developed markets, the interest in the local market increased even more, which accelerated the creation of a new class of retail investors".

• "The much stronger presence of NATO allies brought a sense of security not only from a military point of view but also from an economic point of view", says Alin Brendea

According to the director of Prime Transaction, there were several factors that contributed to the appreciation of the local market in the second part of the year, but two were really important, the first being the listing of Hidroelectrica.

"A second significant growth vector was provided, somewhat surprisingly, by the proximity of the war in Ukraine. The location of the conflict (it did not extend to the west) and the Western war aid effort, including at the logistical level, apparently created reasons for growth on the stock exchanges in the area, which recorded appreciation above the average of the European markets. In Romania's case, the much stronger presence of NATO allies brought a sense of security not only from a military point of view but also from an economic point of view. For big investors, partnerships of this kind are important elements of investment decisions", wrote Alin Brendea.

• Eighteen of the twenty companies in the BET had positive total returns last year

Eighteen of the twenty companies included in the BET Index had positive nominal total returns last year, with most of the gains coming from price increases, with the exception of FP which distributed the largest dividend in our market's history.

"Pleasant surprises came from the issuers in the second echelon of the BET index - Sphera, Transport Trade Services, Bursa de Valori Bucharest or Aquila had higher returns than the large companies in the energy and banking fields. The nasty surprises were MedLife, which reported a 90% drop in profit for the first nine months, and its share price ended the year in the red. Likewise, TeraPlast had declining financial results, which is reflected in the share price," says Dragoş Mesaroş from Goldring.

The shares of the shipping operator Transport Trade Services had a total gross return of around 140% last year, the company's activities benefiting from the situation created by the war in Ukraine. Shares in Sphera Franchise Group, the operator of the KFC, Pizza Hut and Taco Bell brands, ticked off a total return of 95%, amid a strong increase in profitability, while the listing of Hidroelectrica and the election of a new Board saw the share rise strongly BVB, the securities of our capital market operator ending the year with a nominal total return of almost 90%.

• Dragoş Mesaroş: "Banks benefited from higher interest rates, with a positive effect on margins"

In a period when the Euro Stoxx Banks index rose by around 23%, the main credit institutions from BVB, respectively Banca Transilvania and BRD-Groupe Societe Generale, had total returns of 44% and 38% respectively.

"The banks benefited primarily from the higher interest they collected, with a positive effect on margins. They have not seen much growth in lending, but have instead lent the government quite a lot at 7-8% interest in 2022-2023, which will be reflected in next year's profits. Therefore, I think that the banking sector has a chance to have good results in 2024, compared to 2023", says Dragoş Mesaroş.

• The energy sector gained even greater importance on the BVB, with the listing of Hidroelectrica

With the listing of Hidroelectrica, the largest Romanian company on our stock exchange, the energy sector gained even greater importance on the BVB, over half of the structure of the BET index, respectively 55%, being composed of energy producers or utilities. Hidro reported rising revenue, production and profitability in the first nine months of last year, and the share price rose 16.4% from the first day of trading.

In contrast, other energy companies had declining financial results, but dividends, monopoly or oligopoly positions, the various projects in which they are engaged and the general environment favorable to risky assets supported the growth of quotes and yields." OMV Petrom (SNP) shares had a total return of 56.4% last year, while for Romgaz (SNG) and Nuclearelectrica (SNN) the returns were 41.8% and 24.7%, respectively. Utilities also had major share price gains so that, overall, the BET-NG index advanced 31.4% last year.

• Stock listings on the AeRO Market have ceased; last year only one company debuted on the BSE's Multilateral Trading System

High interest rates, uncertainty about how the economy is going, and mistrust in the market after a number of small companies listed in previous years completely failed investors' expectations, caused listings on the AeRO Market to cease. Millenium Insurance Broker is the only issuer to come on the BSE Multilateral Trading System last year, after ten share listings in 2022 and twenty in 2021.

In the Regulated Market, Patria Bank launched a new ETF, dedicated to the energy sector - ETF Energie Patria Tradeville, and the Ministry of Finance continued the Fidelis government bonds program, intended for the population. On the other hand, Agricover Holding's offer failed, due to a number of factors including the launch just before Hidroelectrica's offer or the price considered high compared to other issuers on our stock exchange.

• The number of investors has tripled in recent years, but only a quarter are active

The more intense activity at our stock exchange is also reflected in the number of investors present at the BVB, which has tripled in the last four years. According to the data of the Investor Compensation Fund, at the end of the third quarter of last year, there were about 168,000 investment accounts at BVB (but fewer investors, because one person can have several accounts), compared to 55,000 in the third quarter of 2019. There were perhaps around 40,000 active investors, given that, in the middle of last year, there were around 44,000 active accounts, according to ASF data.

The average level of daily transactions with all instruments listed on the Regulated Market amounted to 97.4 million lei, last year, the highest in BVB history, but the value was strongly pushed up by Hidroelectrica's offer, so that the real measure of trading it is smaller.

Hidroelectrica's listing made our stock exchange the second largest market in Eastern Europe, from the point of view of capitalization, according to data from the European Federation of Stock Exchanges (FESE). In November, the value of Romanian companies listed on the BSE amounted to 41.8 billion euros, over that of local companies present on the stock exchanges in Budapest and Prague, of 34.1 billion euros and 32.1 billion euros. Warsaw, with a capitalization of Polish listed companies of 181.6 billion euros, is in another league entirely. But in terms of trading, things are less good, given that the average daily value of exchanges at BVB has barely reached the level of the Czech Republic and is only half of the value recorded in Budapest.

However, the fact that the transactions of some markets with smaller capitalizations are higher than those of the BSE points to structural deficiencies of our market, including lower free-float, the impossibility of short sales and the absence of derivative financial products.