Strong increases at BVB in the first part of the year; What's next ?

The indexes of the Bucharest Stock Exchange (BVB) had strong increases in the first half of the year, in a continuation of the upward trend that the main baskets of shares of our capital market have subscribed to since the summer of last year.

Financial results from companies that in some cases beat expectations, dividend allocations whose yields remained at a relatively high level, and steady purchases by private Pillar II pension funds that now have more money to spend invest, are among the internal elements that fueled the growth of the indices.

The developments occurred in an international climate favorable to risky assets, a fact reflected by the evolution of the pan-European Stoxx 600 index, which rose by 6% in the first half of the year, while in the United States the S&P 500 index had an advance of 14 .5%, but against the background of an industry poorly represented in Europe and not at all here.

In this context, the BET index, which captures the dynamics of the twenty most liquid stocks on the BSE, had an increase of 18.7% in the first six months of the year, while, including dividends, the advance of the index expressed by BET-TR was 25.2%, with both baskets of stocks at all-time highs.

The question is whether, with share prices higher than at the start of the year and the fact that most of the dividend - which is important to our market - has already been paid, is there any fuel left to fuel the index's uptrend from our stock exchange.

• Adrian Mitroi: "The dividend yield from BVB does not indicate sales decisions"

Adrian Mitroi, CFA analyst and professor of behavioral finance, sees no reason for the prices of the main shares on our stock exchange to fall in the second part of the year, given that, for large institutional investors, who have a long-term approach, the market ours remains attractive from a dividend yield perspective, even if the stock looks more expensive now.

The CFA analyst told us: "BSE remains a market with high dividend yields. The distributions of state-owned companies contribute to the financing of the budget deficit, so the performing ones must have a substantial allocation rate, which implies a substantial dividend yield. And for fund investment boards, this dividend yield, even at higher share prices, does not indicate sell decisions - perhaps small buys or wait-and-see".

The professor of behavioral finance added: "Share prices are 20% higher (y/y) but companies are also more profitable. Romania's economy is growing, there are expectations for increased revenues and profits, but as distribution rates remain constant, dividend yields remain at 5-7%. In other words, higher share prices do not compress dividend yields so that companies are no longer good to buy."

Since 2017, the Government has consistently required that at least 90% of the profits of the companies it controls be distributed as dividends. There were cases where the executive exempted certain companies from this rate, but in general, names such as Hidroelectrica, Romgaz, Conpet and others allocated the entire profit to shareholders, sometimes distributing money from reserves as well.

In addition to the fact that the dividend yield from the BSE remains high, Adrian Mitroi also highlighted the high demand for shares from Pilon II pension funds, which supports the quotations, given that, starting this year, contributions to private pension funds mandatory increased from 3.75% of the monthly gross income of employees to 4.75%.

• Marcel Murgoci: "The most important thing is the company's profit, because it is from there that the prospects for the allocation of dividends are shaped"

Marcel Murgoci, chief operating officer of brokerage Estinvest, says that in the end, companies' financial results will matter most in investors' decisions.

The broker told us: "There will be dividend distributions in July, certainly not of the size of the ones so far, but there will still be allocations that can generate trading volumes. From the end of July and throughout August, companies will publish their financial statements for the second quarter. Then, OMV Petrom's likely dividend in September followed by third quarter financial reports. Probably, the elections could also have an impact on the evolution of the market, somewhere towards the end of the year and in the first part of next year".

From the BET index, Romgaz and Digi Communications are the companies that will allocate money to shareholders this month, with Purcari and the Bucharest Stock Exchange to pay in August. Also, OMV Petrom proposed a new dividend to be paid in September.

"There is money in the market, there are pension funds that are constantly buying, but the evolution of BVB is also influenced by the evolution of foreign markets", said Marcel Murgoci.

In the first six months of the year, banks, oil and gas producers and utilities were the best performing sectors in the BET index, alongside the spectacular developments of some issuers, for example Digi Communications, whose shares rose due to punctual.

"Probably the sectors that performed in the first semester will remain in the eyes of investors, especially if they will be supported by the financial data related to the first semester and the third quarter. In the end, in my opinion, the most important thing is the profit that the companies will report, because that is where the prospects for the allocation of dividends take shape", pointed out Marcel Murgoci.

• Antonio Oroian: "I expect that, in the second part of the year, the banking sector will remain solid"

Antonio Oroian, broker at Goldring, is of the opinion that, given the increases so far and the fact that there is an election period ahead, some investors will probably mark their profits.

"It was hard to believe that, after a spectacular year 2023, we will have such a good evolution in the first part of 2024. So far, the companies that have delivered financial results have also delivered returns from the point of view of the evolution of shares , even if, in some cases, the share price far exceeded the evolution from the point of view of the fundamental situation", Antonio Oroian told us.

The broker expects the banking sector to remain solid in the second half of the year, but overall we may not see increases like in the first six months of 2024. "The second part of the year will be quite complicated, especially since the election period is coming, and probably some of the investors will want to mark profits, in order to get through a period that promises to be volatile. Thus, a correction should not be ruled out, which can be a basis for new assessments, if unusual events do not occur", says Antonio Oroian.