What fueled the rise of the BET index this year?

The listing of Hidroelectrica, which put the Bucharest Stock Exchange on the radar of new institutional investors and attracted new capital flows to the market, the undervaluation of companies, high dividend distributions and the improvement of the general macroeconomic context, are among the main elements that fueled the increase in the prices of shares of Hidroelectrica. at the BVB this year, according to the opinions expressed yesterday by investment fund managers, during a press conference.

The BET index, which reflects the dynamics of the twenty most liquid stocks on the BSE, is up around 28% this year, while the BET-TR index, which also reflects the dividends paid by companies, is up 35%, both baskets shares recently hitting new all-time highs.

• Robert Burlan: "The prospect of inclusion in MSCI Emerging Markets will support the market's performance in the coming period"

Robert Burlan, CFA, Head of Investment Management at Raiffeisen Asset Management, says that there are a number of factors that contributed to the performance of the local market, which were mainly manifested in the second part of the year, after the listing of Hidroelectrica.

The fund manager stated: "First of all, the IPO attracted considerable amounts of money which later returned to the market. The level of subscriptions was about six billion euros, compared to an offer of two billion, which means that a lot of money remained outside and returned to the market. The IPO also set a new benchmark for local market valuation in terms of valuation multiples. About six billion euros valued Hidroelectrica at a multiple of almost ten (n.r. for the Price to Earnings Ratio report), compared to valuation multiples of four to five for the other large listed companies, which contributed to the revaluation of the other companies in the market. At the same time, the IPO was the precursor for the dividend distribution of Fondul Proprietatea, of over nine billion lei, money that once again returned to the market and supported the very good performance of the stock exchange".

Robert Burlan added: "Other factors are related to the very attractive valuation of listed companies, the high level of dividends, the very high demand from institutional investors, in this case pension funds that make constant large purchases, and now the prospect of inclusion in MSCI Emerging Markets, which will support the performance of the market in the coming period as well".

• Adrian Dudu, Certinvest: "The main factor that contributed to the market's performance was the undervaluation of Romanian shares"

The main factor that contributed to the performance of our capital market was the undervaluation of Romanian shares, believes Adrian Dudu, Certinvest's Chief Investment Officer.

The fund manager said: "At the start of 2023, any valuation multiple was at a historical low compared to a period starting in 2018. The Price to Earnings Ratio was somewhere around five for the BET index. Also, the stock market capitalization/GDP ratio for Romania was very low (...). The undervaluation comes as a result of the fact that the profits were very high for Romanian companies, especially for the main components of BET".

According to the director of Certinvest, the listing of Hidroelectrica was another factor that fueled the performance of our market, but with a secondary role. "Maybe it contributed as an attraction for other investors, who came and placed money in the Romanian market, pushing the quotations higher", said Adrian Dudu.

• Dragoş Manolescu: "The Hidroelectrica IPO put us on the map of many foreign institutional investors, who until the time of the company's listing were not investing in Romania"

Dragoş Manolescu, CFA, Deputy General Manager of OTP Asset Management, believes that the listing of Hidroelectrica was probably the most important factor supporting the performance of our market this year.

The fund manager said: "The results reported by companies this year were spectacular. Many energy companies, helped by the geopolitical context, the war in Ukraine, oil, gas and electricity prices, reported exceptional profits, difficult to repeat in the future. From here came some special dividends, money that returned to the market".

Dragoş Manolescu added: "The Hidroelectrica listing was, from my point of view, perhaps the most important factor that supported the performance of our market, because the IPO put us on the map of many foreign institutional investors, who until the time of the company's listing they did not invest in Romania. However, this means new flows of capital entering Romania and which, if in the first phase they invested only in Hidroelectrica, later they also invest in other companies listed on the BVB. One of the largest ETFs on MSCI Frontier Markets, which in the past was passively managed, and now is Smart Beta (which, through certain strategies, aims to exceed the benchmark), had smaller exposures to Romania. Now, being actively managed, it has taken exposures on several companies from the BVB".

The director of OTP Asset Management also pointed out that Fondul Proprietatea and other energy companies distributed special dividends and probably some of these amounts returned to the market. "Until a month before the IPO, the BSE indices were uncorrelated with the main global indices, as many investors had prepared cash for the listing. And this cash returned to the market", said Dragoş Manolescu.

In his opinion, another very important factor for the performance of our market was the change in the rhetoric of the main central banks - the Federal Reserve and the European Central Bank.

"If at the beginning of the year the expectations were to have higher interest rates for a longer period, this being the rhetoric of the main presidents of the central banks, during the year the rhetoric changed. They have become more flexible so that, at the moment, global financial markets have come to expect three interest rate cuts next year from the Fed, or perhaps even more. These expectations of future interest rate cuts fueled the revaluation of companies, with a positive impact on share prices," said the fund manager.

• Rareş Trif: "Investors started buying, attracted by valuations"

Rareş Trif, Chief Investment Officer of BT Asset Management, is of the opinion that at the beginning of the year most stocks on the BSE were undervalued, but as companies published their results that exceeded expectations, investors started to buy .

The fund manager said: "At the end of 2022 we were coming after a period of declines. Indices were down 20% from highs and stocks were undervalued. We started from a point where BET shares and most BSE companies were undervalued. And expectations for 2023, at least in the United States, were not optimistic. Recession expected, unemployment rising. Estimates for the S&P index do not think they exceeded the value of 4,000 points, and now the index is close to 4,600 points.

Rareş Trif added: "As, during the year, the results of BSE companies were above the expectations of the end of 2022, I think that investors realized that the situation is not so bleak and started to enter to purchase, attracted by the very attractive valuations. I had a conetxt with high interest. The fact that the issuers from the Bucharest Stock Exchange have a relatively low level of indebtedness compared to the situation in other markets contributed (n.r. to the market performance), because high interest rates did not have such a strong negative impact on the companies' profitability".

In his opinion, with the listing of Hidroelectrica, our capital market has benefited from unprecedented visibility and promotion in the last ten years. "We had the biggest IPO in Europe, which I think put the local stock exchange on the map of many foreign investment investors, which brought a lot of money to the market, something that can be seen in the daily liquidity and the increase in share prices on the BSE" , said Rareş Trif.

Răzvan Pasol, the General Director of Patria Asset Management, believes that, in addition to internal factors, the macroeconomic environment has been favorable to the evolution of our capital market.

"The Romanian economy performed reasonably well, which also encouraged the performance of the stock market, and the global capital markets, with which we are quite well correlated, performed very well. Thus, there were prerequisites for a good evolution of the stock market, even if there were fears of recession at the beginning of the year. But I think the macro factors helped us", said Răzvan Paşol.

In his opinion, the Hidroelectrica offer was an important factor supporting the performance of our market, mainly because it put a spotlight on the performance and possibilities of the stock market. "It is an important thing for Romania, because we want the number of investors to be higher," said the General Director of Patria Asset Management.