"The local stock market will have an evolution no different from that of developed markets"

Recorded by Andrei Iacomi
English Section / 14 februarie

"The local stock market will have an evolution no different from that of developed markets"

Versiunea în limba română

(Interview with Adrian Negru, CEO of Raiffeisen Asset Management)

"By investing gradually and constantly, I significantly reduce the impact of volatility on the portfolio"

"Most likely the local market will have a markedly different evolution from that of developed markets, similar to what happened in recent years"

"As tough as 2022 was, it created the conditions for Romanian assets to become attractive "in corpore"

"As inflation continued its downward trend and the market entered under the specter of falling interest rates, we see a gradual positioning towards funds with longer maturities"

Our share market and implicitly local share funds will most likely have a markedly different evolution than the developed markets this year, which implies smaller-scale corrections, many times faster returns following corrections compared to European markets and a better overall performance, says Adrian Negru, CEO of Raiffeisen Asset Management, in an interview with BURSA newspaper.

From his point of view, with the listing of Hidroelectrica, we can have real hopes that our capital market will be advanced to emerging status. On the other hand, this promotion is expected to lead to a gradual market acceptance of higher multiples for companies than we have been used to in recent years.

"If you have time on your side, you can turn almost all financial decisions into profitable ones", says the General Director of Raiffeisen Asset Management.

Reporter: Barring completely unforeseen events, what are your expectations for 2024 in terms of stock and bond fund returns? On what grounds do you base your opinions?

Adrian Negru: We believe that equity funds, especially local ones, will continue their good course in the coming period. Even if after the spectacular evolution of 2023, a good part of the gap created in 2022 was closed when the quotations of the companies listed on the BVB remained far behind the very good financial results of 2022, and confirmed to a good extent in 2023, we believe that there are still enough reasons for optimism . Even if 2024 will not bring further increases in profits for many of the companies, their level is at least satisfactory to support current quotes. Moreover, with the listing of Hidroelectrica and the increase in the contribution to the II pillar of pensions, we are witnessing the entry of new investors into the local market and the consolidation of the most important category of investors for the evolution of BVB, the local mandatory pension funds. Considering that, after the listing of Hidroelectrica, in the medium term we can have real hopes that the local market will be advanced to the status of an emerging market, it is expected that one of the effects will be the gradual acceptance by the market of higher multiples for the companies local than those we have been used to in recent years.

As for bond funds, it is expected that they will continue their good evolution in 2024. Even though the market has already started anticipating since the end of last year the normalization of interest rates that will most likely start this year , once we have certainty that inflation is approaching normal levels and central banks will reflect this by lowering policy interest rates, the effect can only be positive for bonds and bond funds. It is important to remember that the best time to be invested in bond funds is when interest rates are falling. By their nature and by the fact that they "mark to market" market developments, it means that in a scenario where interest rates fall (by default bond prices rise), the performance of a bond fund will include both the bond coupons and the difference (positive) price rise from falling interest rates.

Reporter: Do you think that there will be a significant difference between the evolution of shares on the BVB (implicitly of the funds that follow our market) and the international ones - European and/or from the United States (respectively of the funds that invest in such markets)? Why?

Adrian Negru: Yes, most likely the local stock market and implicitly local stock funds will have a markedly different evolution from that of developed markets, similar to what happened in recent years. Smaller corrections, many times faster returns from corrections compared to European markets at least, overall better performance. These are all things that have characterized the BVB in recent years and I expect them to continue in good measure.

The reasons are related to the market structure. On the one hand, we have a significant number of issuers that come from sectors that have allowed them to register excellent profit margins translated into generous dividend distribution rates, even if at BVB we do not have a complete representation of the Romanian economy, those issuers that are listed have a high financial performance. On the other hand, we also have an increasingly solid structure of institutional investors, both in absolute terms and relative to the size of the local market. In addition, I hope that the segment of retail investors, whether they do it through direct investments or through investment funds, will continue the positive trend that was fully manifested in 2023. It is good that many Romanians are taking advantage of the evolution of the BSE through through pension fund holdings, it would be even better to profit through direct personal investment as well.

Reporter: Reporter: How do you rate the performance over the last three to five years of the main funds/fund classes managed by Raiffeisen Asset Management, depending on the risk profile?

Adrian Negru: Before describing the performance of our main fund classes, I think it is important to remind you that our funds use "mark to market" as the main evaluation method. In other words, even if the funds are actively managed, the main factor that determines their evolution is the performance of the market in which they invest. Coming back to your question, the performance of our funds has been mixed, both in terms of years and fund classes. Starting from 2020, a year marked by the onset of the pandemic which resulted in high volatility, unprecedented for government securities and implicitly not even for bond funds, but also through a clear proof of how resilient the local market has become of stocks (see the recovery and performance after the initial decline caused by the uncertainty brought by the pandemic). Moving on, in 2021 we had a small respite, so that in 2022 we will have the most difficult moment in the history of the local asset management industry caused by the increase in the yields of local government securities (especially those in euros) to a level and at an unprecedented pace. As tough as 2022 was, it created the conditions for Romanian assets to become attractive "in corpore", a fact that was seen in 2023 and we hope to see it in the future.

In conclusion I would say that our funds have maximized the opportunities offered by the markets during this period, particularly when it comes to the local equity market, and have coped brilliantly with extreme market conditions. Even though there were temporary losses during this period, unpleasant and undesirable as they were, they were strictly the result of extreme conditions whose frequency should be reduced even in the life of a very long-term investor.

Reporter: How have the preferences of investors in Raiffeisen Asset Management funds evolved in recent years? What do you think are the explanations?

Adrian Negru: Investor preferences were mainly influenced by market events. In the years when government bonds had high, even extreme volatility (2020 and 2022) we saw outflows from bond funds. In early 2023, after the corrections in government bonds had mostly worn off, investors took notice of the high level of yields even in the short term and poured into short-maturity funds. In recent months, as inflation continued its downward trend and the market entered under the specter of falling interest rates, we see a gradual positioning towards funds with longer maturities, the most advantageous if this scenario becomes a reality. As far as equity funds are concerned, both their performance and the evident favorable factors of the local market have determined that local equity funds are some of the investors' favorites during this period.

Reporter: What do you think are the criteria on the basis of which a person should choose an investment fund?

Adrian Negru: Investment funds are nothing but "tools", starting from general use to a very specific one, which can be used by each of us to achieve our personal goals. First of all we have to consider our objective. If, for example, we are only talking about relatively short-term cash management, regardless of whether it is an individual or a company, then a bond fund with short maturities is probably the most suitable. On the other hand, if I want to build my capital in the long term, then it is "obligatory" to have a share fund in my portfolio. Often times though, especially if I'm new to a stock fund/investing in stocks, even if the volatility of recent years hasn't been extreme, it can still be too much for what I'm willing to tolerate. In this case, a very good solution to build the "risky" part of my portfolio is periodic investment, by investing gradually and constantly I significantly reduce the impact of volatility in my portfolio. I also think it's important not to put ourselves in a difficult spot by investing in very short terms or trying to speculate, however interesting and attractive it may seem. We will most likely do so to the detriment of our own portfolio, either by marking smaller gains than would have been possible if we had stayed invested, or even by marking losses. If you have time on your side, you can turn almost any financial decision you make into a profitable one.

Reporter: Thank you!

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