Romanian stock market's elevation to emerging status opens up a diverse market

Romanian stock market's elevation to emerging status opens up a diverse market
The Bucharest Stock Exchange (BVB) is now classed as an emerging market and the index rose 20% YTD making it one of the best performing markets in the world
By Clare Nuttall in Glasgow October 2, 2019

After years of striving, the Bucharest Stock Exchange (BVB) has finally been upgraded by FTSE Russell from frontier market to emerging market status, the BVB announced on September 26.

The reclassification, effective from next September, should lead to an influx of new funds, as seen in other countries that received the same upgrade, as portfolio investors dedicated to investing into emerging markets adjust their portfolios to take into account the change.

Highlighting the significance of the change, Lucian Anghel, president of the BVB, said in a statement on September 26 that it can be “considered, from the economic standpoint of the capital market, the equivalent of the country’s admission to the European Union.”

"A new market status opens the way for new funds to invest in the local capital market. Funds much larger than the ones that have invested so far and that manage hundreds of billions of euros will be allowed to invest here in the next years as these funds’ managers are restricted by the prospectus to invest in frontier markets,” Anghel commented. 

FTSE Russell’s decision to reclassify Romania came three years after the country was added to the shortlist for an upgrade, and it has taken several years of hard work to meet all the criteria, as BVB CEO Adrian Tanase explained in an interview with bne IntelliNews in 2018. 

Currently, three companies listed on the BVB meet the requirements for inclusion in the FTSE Global All Cap index based on the data tracked by FTSE Russell on June 28, 2019: natural gas producer Romgaz and two banks, Banca Transilvania and BRD - Groupe Société Generale. The final decision on their inclusion in the September 2020 FTSE Global All Cap Index will be taken on the basis of the stock market situation on June 30, 2020.

These companies are among the 16 most liquid companies on the BVB that make up its leading BET index. While there is a preponderance of energy stocks — Romgaz, oil and gas company OMV Petrom, electric power utility Electrica, nuclear power company Nuclearelectrica, the operators of Romania’s gas and electricity transmission systems Transgaz and Transelectrica, and oil pipeline network operator Conpet — the index also spans a wide range of other areas such as banking, manufacturing (Alro), healthcare (MedLife) and food and drink (Sphera Franchise Group and Purcari Wineries). Also included in the index is restitution fund Fondul Proprietatea, which holds shares in many of Romania’s largest companies. 

The broad range of sectors on the BET index reflects the diversity of the Romanian economy. In addition to its oil and gas reserves and energy generation capacity, Romania has a large agricultural sector, substantial mineral resources, and a manufacturing sector that is continually gaining new investors thanks to the country’s proximity to major West European markets and relatively low costs. Consumer focussed sectors have thrived during the recent years of growth driven by steadily rising wages, and the IT sector is going from strength to strength.

In the first half of 2019, the BET index grew by nearly 20%, which was the second-fastest growth among the main indices of the stock exchanges from the European Union. 

The BET-TR index, which includes the dividends paid by the companies from the BET index, reached a new all-time high in September, passing the 15,000-point mark this September. This “corresponds to an increase of 39% this year alone, making Romania one of the top-performing capital markets in Europe,” a press release from the exchange said.

The diversification of the BET index has been helped by a series of IPOs of mainly consumer-focussed companies over the last few years. 

Romania’s largest healthcare provider MedLife came to the market at the end of 2016, as the first company to launch an IPO in Bucharest post-crisis. Since then the company has pursued an aggressive expansion strategy to increase its share of Romania’s fast-growing private healthcare market. 

This was followed by the IPO of Digi Communications, the parent company of Romanian diversified telecoms company RCS&RDS, that was overshadowed by the launch of a criminal investigation into RCS&RDS’ CEO by Romania's National Anticorruption Directorate (DNA).

Later in 2017, food service group Sphera Franchise Group also came to the market. Sphera is the local franchise holder for a portfolio of international brands: it has the KFC, Pizza Hut, Pizza Hut Delivery and Taco Bell franchises in Romania, as well as the KFC franchise in Moldova and in two regions in northern Italy.

Purcari Wineries Group then became the first ever Moldovan company to hold an IPO, listing on the BVB in February 2018 in an offering that was more than four times oversubscribed, and followed a period of rapid growth for the company. Vasile Tofan, a partner at Purcari’s private equity backer Horizon Capital, told bne IntelliNews shortly after the IPO that the company planned to grow organically and through acquisitions in Romania and Central Europe as it expands away from its home market