Over the past six months, investors viewed Romania in relation to potential risks, culminating with the presidential elections. They welcomed Romania’s reaffirmed commitment to a pro-EU path, but are still waiting to see authorities tackle the public deficit, according to an analysis by Divo Pulitika, board member at Croatian asset manager InterCapital ETF.
Romania’s stock and bond market faced challenges since the Russian invasion of Ukraine. After a period of return to normalcy, concerns grew again after the EU elections of June 2024, with a perceived shift in Romanian sentiment toward Russia.
“The end of the year was marked by two key developments: the first round of presidential elections, which appeared to confirm this shift; and the warnings from rating agencies regarding Romania’s growing budget deficit. Combined with global uncertainty, ranging from economic growth concerns to the US elections, this led many investors, particularly international ones, to exit their Romanian positions,” the analysis maintained.
The exits led to a decline in the main Romanian BET index before the decisive vote.
“Those who maintained their belief in Romania were rewarded. Following the election victory of Nicușor Dan, bond spreads fell to 3.6%, a significant move in bond markets, and the BET index surged by 5.4% on the Monday after the vote,” Pulitika argued.
The vote was a clear signal that investors appreciated the pro-EU path, reigniting positive sentiment toward the market. The remaining problem, however, is posed by Romania’s public finances.
“The country’s debt-to-GDP ratio stood at 54.8% at the end of 2024, well below the EU average of 82.2%. However, the European Commission’s Spring Forecast projects a relatively fast increase over the next two years, reaching 63.3% by the end of 2026. Unless the government can reduce the budget deficit, which the European Commission sees at 7.9% of GDP in 2025 and 7.0% in 2026, debt levels could rise to unsustainable levels, placing significant pressure on the economy,” the analysis warned.
Political stability has somewhat returned, the analysis noted, with the election of Nicusor Dan. “Both the president and parliament are pro-EU, which creates the premises for a similar orientation of the new government that will be installed in the coming weeks,” and a renewed focus on budget stability.
The Romanian market can become attractive again, pending consolidation. “If budget consolidation is achieved, investors may return eagerly. Romanian EUR bonds offer some of the highest yields in Europe, while equities remain attractively valued with P/E ratios below 10x for the BET index and dividend yields above 5%,” with investors waiting to see Romania avoid “junk” status.
InterCapital manages two exchange-traded funds, or ETFs, listed on the Bucharest Stock Exchange.The first, trading under the ticker ICBETNETF, was listed May 29, 2024, and tracks the performance of the BET-TRN index, representing the net total return variant of the BET index. The second listed ETF tracks Slovenia’s main index.
(Photo source: press release)
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