What do BSE brokers and analysts expect this year?

Lower interest rates by the world's major central banks, which favors equity markets, high-yielding dividend distributions by Bucharest Stock Exchange (BVB) companies, progress towards moving our market into the MSCI Emerging Markets category and increasing contributions to private pension funds Pilon II are the main elements that can support the increase in share prices at BVB this year, according to brokers and analysts consulted by BURSA newspaper.

On the other hand, the electoral rounds in our country and internationally, as well as the fact that the BET index has been on a strong upward trend for some time, which increases the probability of the appearance of profit markings that, under certain conditions, can turn into significant corrections, are elements that can bring volatility to the market, especially in the second part of the year.

By and large, brokers and analysts are optimistic about the performance of shares on the BSE this year, but stress that last year's returns, when the main indices rose by more than 30%, will not be repeated.

• Adrian Mitroi: "We no longer have low valuations compared to the immediately nearby markets"

Adrian Mitroi, professor of behavioral finance and CFA analyst, says that our market no longer has the low valuations of the past, a situation that will be maintained with the accession to the MSCI emerging markets category.

"The Romanian market had two assets: low valuations and dividend yield. Now we no longer have low valuations in terms of P/E Ratio compared to immediately nearby markets. Compared to the group of "magnificents" in the United States, the P/E ratio still looks reasonable, but that is an artificial intelligence P/E. For the S&P 500 index without "magnificents" the P/E ratio is almost 20, while our P/E level is 10-15, it depends on how it is calculated, so it is expensive", the professor of behavioral finance told us .

In his opinion, entering the MSCI emerging markets category will bring substantial changes to the Romanian market. "It will be a more expensive market and we will have to adjust to somewhat lower returns than last year's substantial ones, which were surprising," says Adrian Mitroi.

In order to be promoted from the echelon of frontier markets to that of emerging markets, the BVB must meet a series of criteria related to market accessibility, which according to the statements of the managers of the exchange are met, and a criterion related to size and liquidity - at least three companies with a capitalization of at least 2.066 billion dollars, which has a free-float of at least 1.033 billion dollars and an annualized liquidity of at least 15% (of the capitalization of the free-float). Hidroelectrica, OMV Petrom, Banca Transilvania and Romgaz are the main BVB companies that currently meet the size criteria, but in terms of liquidity things are less good - according to an analysis by Egle Fredriksson, Portfolio Manager at East Capital Asset Management, in July last year, none of the three eligible companies at the time (OMV Petrom, Banca Transilvania and Romgaz) met the liquidity criteria.

MSCI assesses markets annually for possible reclassifications, with the conclusions of each assessment, including markets monitored for possible reclassification in the next cycle, announced in June.

• Dragoş Mesaroş: "I expect BET to have a growth of 7-10% at the end of 2024"

Dragoş Mesaroş, the trading director of the Goldring brokerage house, sees a positive international context for the stock markets, to which are added domestic elements, which have the potential to support the BSE quotes.

"We have a slowdown in inflation, which would lead to lower interest rates. In the United States, the Fed estimates that there will be three interest rate cuts in 2024. There is also a possibility that the European Central Bank will also cut interest rates sometime in the middle of the year, as well as here. Or, these things only bring other money into the market", the broker told us.

Dragoş Mesaroş added: "Contributions to mandatory private pensions will increase from 3.75% to 4.75%, so that the funds will have even more money to invest; part of this money will go to the capital market".

Pilon II pension funds, whose assets had reached 118 billion lei in October last year, are the largest investors on our stock exchange, between 20 and 25% of their portfolios being holdings of shares listed mainly on the BVB, while 65% are government bonds.

"Another positive factor would be the possibility of Romania moving from a frontier market to an emerging market. That would mean that the funds that follow the emerging markets buy shares in the most important companies in the BET index", says Mesaroş.

Passive investment funds or ETFs that track the MSCI Emerging Market Index have much larger assets under management than those that track the MSCI Frontier Market Index. For example, at the end of last year, the iShares MSCI Emerging Market ETF had $17.86 billion in net assets, compared to just $506.1 million for the iShares MSCI Frontier and Select EM.

"I expect that until somewhere in the middle of the year we will have increases, but it is quite difficult to estimate what will happen in the second part of the year", added the Goldring broker, referring to the uncertainty surrounding the elections. "Overall, I don't think we will see an evolution like the one in 2023, but I expect BET to have a growth of 7-10% at the end of 2024. That, of course, if completely unforeseen things do not occur."

• Marcel Murgoci: "Derivatives can play a very important role in the development of our market"

Marcel Murgoci, the director of operations of the brokerage company Estinvest, sees the relaunch of the derivatives market and listings of large companies as necessary elements for the development of the BVB.

"From my point of view, our market should move to another level, and here I mean new products. The relaunch of derivatives trading is expected, respectively the operationalization of the Central Counterparty. I think it's an element that could matter a lot in the development of our market," the broker told us.

Unfortunately, the completion of the Central Counterparties project is delayed, and according to some statements by the general director of the BVB, Adrian Tănase, the CCP will be operational in the first part of this year. Regarding the listings, Marcel Murgoci believes that, being a full election year, such exercises will not appear on the part of the state.

"The listing of Fort on the AeRO Market was announced from the private area. Listings on this market are very welcome; AeRO is a growth market where companies can develop and then move to the Regulated Market. But with the promotion of the market to the MSCI emerging category, liquidity and visibility should increase, which could lead to higher-calibre issuers considering listing on the BSE Regulated Market," concluded the Estinvest broker.

At the end of December, Fondul Proprietatea convened the shareholders to approve the sale of the stakes held by FP in Bucharest Airports, Constanţa Port or Salrom, under certain conditions. Sales can also be made through public offers followed by listings, but this requires the vote of the state, which controls the three companies.

• Alin Brendea: "It seems that the growth trend of the local market can continue, at least in the first half of the year"

Alin Brendea, the operations director of the Prime Transaction brokerage company, sees an amalgam of factors that can influence the local stock market. Among the elements with a possible negative impact, the director of Prime reminds that we are entering a year with four electoral rounds

"Inevitably we will see an exacerbation of populist statements and proposals. We will probably see proposals for new tax models, new economic priorities, etc. Under these conditions, uncertainty will increase in the financial markets, which is not the best thing for the stock market. Fortunately, the business environment has acquired, in recent years, an increased immunity to all these statements and innovative political ideas", wrote Alin Brendea in his latest editorial.

The director of Prime continued: "There is significant profit. After a significant market growth trend, not only in value but also in duration, there are numerous holders of investment portfolios in which stock market profit abounds. Under these conditions, any negative information can more easily bring sellers into the market. And sales can easily turn into stock market corrections".

According to the broker, another possible negative element relates to the existence of a deceleration, a braking of the economic mechanisms. "High interest rates finally produce visible effects: consumption weakens, there are economic sectors where the slowdown becomes obvious (for example, real estate). We are likely to see a wave of consumer caution in the new year, which will affect the financial results of many issuers. Not only at the level of published results but, more importantly, at the level of short- and medium-term expectations", says Alin Brendea.

• "Decreasing interest rates means increased risk appetite, higher stock valuations and an increased attractiveness for stock market investment," points out the broker from Prime

The growing financial results of companies for the past year are one of the positive vectors that can ensure the maintenance of the growth trend of our market in the first part of the year, according to the director of Prime Transaction.

"The latest financial results, those for the third quarter, are good, they have increased in line with the appreciation of the stock market. From this point of view, although the shares have become more expensive in nominal terms, in real terms they have suffered a much less significant increase in price", wrote Alin Brendea.

Also, the support and improved relationship with important NATO countries, led by the United States, which provides better stability to the Romanian economy, the prospect of promotion in the MSCI stock market classification and dividend distributions with good yields, represent other positive elements for our market, mentioned by the broker.

"The capping and lowering of interest rates on the money markets will be the main positive factor of the year, which is already having beneficial effects at present, being responsible for the market growth of the last weeks. Lower interest rates mean increased risk appetite, higher share valuations and an increased attractiveness for stock market investment", Alin Brendea pointed out.

In his view, positives still dominate the chart of major stock vectors for this year. "As such, at this moment, it seems that the growth trend of the local market may continue, at least in the first half of next year (n.r. this year). From the second part of the year, negative factors will gain strength and could lead to the entry into a period of high volatility", concluded the director of operations at Prime Transaction.