Post-election euphoria at BVB; pressure shifts to government and budget

The evolution of capital markets reflects investors' expectations for the next six to nine months, so the strong increase in the Bucharest Stock Exchange (BVB) indices that occurred after the election of the pro-European candidate in the presidential elections suggests that the most pessimistic assumptions for the economy have been, at least temporarily, eliminated from investors' forecasts.

The BET index, of the twenty most liquid stocks on our market, had an increase of about 12% from the moment of the second round of the elections until Friday, halfway through the trading session, after in the previous session it reached a new historical record of 18,813 points, thus exceeding the old absolute maximum from July of last year. The BET-TR index, which also takes into account the reinvestment of dividends allocated by BET companies, appreciated by almost 10%, the basket of shares going from historical maximum to historical maximum in the last week.

"We have gained the possibility of positive economic and stock market scenarios, but we are still far from being sure that these will become reality," says Alin Brendea, stock market analyst at Prime Transaction, referring to the outcome of the presidential elections.

• Goldring: "BVB's performance comes against the backdrop of the dividend season"

The Goldring brokerage team says that the performances of the last few days at the BVB came against the backdrop of the dividend season.

OMV Petrom and BRD-Groupe Societe Generale are among the major companies in our market that have recently paid dividends to shareholders, so that investors have benefited from capital that they were able to reinvest. Also, in the case of some companies, the record date - the reference used to identify shareholders eligible for dividends - has already been reached or is about to be reached in the immediate future, which may have generated buying pressure on shares.

"However, the outlook remains cautious, given the deepening budget deficit (Romania recorded a deficit of 9.3% of GDP in 2023) and the substantial pension increases (cumulatively over 40% in 2024),” Goldring wrote in their report from the end of last week.

Analysts and brokers in our market emphasize that the formation of the new government and the fiscal measures it will take to reduce the budget deficit are essential domestic aspects that will define the evolution of our stock market in the coming months. The financial results of companies and, of course, the general international climate are other elements that can leave their mark on the dynamics of BVB stock prices.

• Alin Brendea: "Local and international investors are waiting to see if there are resources to design a different type of economic growth model”

Alin Brendea, from Prime Transaction, says that the main vector of evolution of the local stock market will be the way in which Romania's new government will be formed.

"The issue of rebalancing public finances will be central. Inevitably, there will be reforms that will have an impact on the economy and, implicitly, on the stock market,” the analyst wrote in a report published on the brokerage company's website.

Our country is currently in the midst of the process of forming a new government, with a focus on drafting the government program and a fiscal plan agreed by the parliamentary parties (PNL, PSD, USR, UDMR and the minority group). The draft of this program is expected to be finalized this week, without any name of prime minister or ministerial portfolios having been officially announced. The appointment of the prime minister is expected in mid-month, and by June 30 the new government, which must quickly adopt the necessary fiscal measures to comply with the European Commission's requirements, should be voted on in Parliament, according to the press.

Romania is facing a high budget deficit, estimated at 8.6% of GDP in 2025, and the Commission has requested a credible reduction plan by June 30, under threat of suspending EU funds. To correct the deficit, several measures related to reducing public spending (by cutting bonuses, bonuses, personnel and investments), tax increases (increasing VAT, higher excise duties, increasing the dividend tax), structural reforms (digitalizing ANAF, combating tax evasion) and even the sale of minority stakes in some state-owned companies, according to the press.

"Romania has a big problem with its consumption-based economic growth model. It is exhausted both economically and politically. Pumping a 9% deficit into the economy has produced anemic economic growth and the loss of elections,” says Alin Brendea.

In his opinion, local and international investors are waiting to see if there are resources to design a different type of economic growth model, which would activate other areas with economic potential in Romania.

"That is why the election of an apolitical president, who is far from falling into the trap of populism or superficial calculations, represents an extremely important first step towards achieving this objective, and the stock market reaction has clearly indicated this. But it is far from being a sufficient step,” wrote the stock market analyst. Under these conditions, the market will be very attentive to how the political forces will outline the new governing program, to the composition of the government and to how this fundamental trio for Romanian society and economy will function: President - Parliament - Government, says Alin Brendea.

• Andrei Nedelcu, Erste Asset Management: "Only extreme surprises would have the potential to move the market in one direction or another"

The formation of the government, economic measures and external tensions are the main elements that can influence the evolution of our market in the coming months, says Marcel Murgoci, the operations director of Estinvest.

"The euphoria related to the elections is decreasing and we return to other issues, perhaps equally important, namely the formation of the new government and the measures that need to be taken to reduce the deficit. However, this may have an impact on the market in the short term or in the longer term, depending on the measures that will be taken. Externally, the conflict in Ukraine and the new policy regarding the establishment of customs duties by the United States may also have an impact on our market, especially tariffs, since we are part of the European Union", the broker told us.

Our country, which is in an excessive deficit procedure, ended last year with the largest budget deficit in the European Union. The EU Council has approved a seven-year plan to reduce the deficit, with the first target being 7% in 2025, through spending reallocations and optimizing public finances, but the Commission's estimate of this year's 8.6% deficit makes it very clear that rapid fiscal correction measures are needed.

Andrei Nedelcu, investment director of Erste Asset Management, believes that the current share price on the BVB reflects some of the measures that the government will take to reduce the deficit. "Only some extreme surprises would have the potential to move the market in one direction or another. I trust that a balance is being sought between the measures that can be taken, so that economic activity, consumption and the business environment are not affected so much, but which, at the same time, manage to satisfy the European Commission and the rating agencies, in order to reduce the risk of downgrade,” the Erste AM director recently said at a conference organized by the BVB and the Romanian Fund Administrators Association (AAF).

Our country is currently on the lowest rung of the "investment-grade" category of the main rating agencies, and the outlook is negative, which means that a downgrade would take us to the "junk" category.

• Alexandru Combei: "The fiscal adjustment will not stop this year, which means that, in principle, the economy will not grow much in the coming period”

Alexandru Combei, investment manager at BRD Asset Management, has a relatively neutral outlook for stocks on the Bucharest Stock Exchange in the coming months. "There are positive aspects regarding our market, and here I am referring to the flows (n.r. capital flows). A stock market can be viewed fundamentally, but also from the perspective of flows, which matter a lot in the short and medium term. Our market has a specificity that will probably be maintained for several years, in the sense that there are some very large natural buyers - pension funds - a back-stop (n.r. protection mechanism), which is a good thing. There is some optimism after the elections and probably many investors who waited will return to the market. On the other hand, there is also the valuation side, which is not the rosiest for our market. I would be somewhat neutral", said Alexandru Combei, during the same conference.

In his opinion, the utilities sector is well positioned in the current economic context. "There is talk of the need for fiscal adjustment, from a deficit of 9%, there is talk of 7.5%, which would be, let's say, a realistic target with indulgence. But fiscal adjustment will not stop this year, which means that, in principle, the economy will not grow much in the coming period; we already had almost zero economic growth in the first quarter," said the manager at BRD Asset Management.

Milan Pruşan, Country Head, Goldman Sachs Asset Management, believes that sectors that benefit from a long-term inflationary context, namely the financial, energy and utilities sectors, will continue to benefit. "We believe that the energy sector will be representative for our region in the coming years, in a happy regional conjuncture, in which the conflict in Ukraine is nearing its end," the fund manager also said during the aforementioned conference.

• Alin Brendea: "We can hope that the growth trend of the Romanian stock market will continue"

Marcel Murgoci from Estinvest points out that some companies in the energy sector, for example Transgaz and Electrica, had good to very good results in the first quarter, which gives investors hope regarding the evolution of the share prices of these issuers.

"As of July 1, the energy market is being liberalized, which means that prices will no longer be set by the state. This can be beneficial for companies in the field, because this scheme created certain problems for some suppliers, in the sense that they had a hard time receiving the money (ed. settlements to compensate for the differences between the purchase price and the capped one) from the state. On the other hand, we noticed a reduction in gas and electricity consumption in the first quarter and it remains to be seen whether this trend will continue", the broker from Estinvest also told us.

In his opinion, the financial results of the companies for the second quarter, respectively the first semester, will probably provide investment opportunities. "The representatives of OMV Petrom stated that they are considering the allocation of a new dividend. There are some conditions (ed. for the allocation of the additional dividend) and we will see if they will be met. They are probably waiting for the measures that the new government will take to reduce the budget deficit, especially in terms of taxes and duties," said Marcel Murgoci.

Taking a longer perspective, Alin Brendea from Prime Transaction claims that, as long as Romania's direction remains oriented towards Europe, the economy "is condemned" to experience a path of organic, natural growth, within the process of convergence towards the European Union average and, implicitly, towards the EU level of economic development. "As a result, based on this economic truth, we can hope that the growth trend of the Romanian stock market will continue," wrote the stock market analyst in the report published on the brokerage company's website.