INTERVIEW – Romanian Bourse To Bounce Back in H2 ’09 Under Best-Case Scenario – Brokerage CEO

Romanian stocks have been racking up heavy losses recently alongside the global financial markets in the aftermath of the crisis that hit several U.S. and European banks and its multiple side effects. The blue-chip BET index of the Bucharest Stock Exchange (BVB) lost 57% in the first nine months of this year, the BET-C composite index fell by 51% and BET-FI index, which tracks Romania’s five regional investment funds, the SIFs, tumbled by 68%.

“I expect the BVB to settle on an upward curve no sooner than the second half of next year, and this is under a best-case scenario. We see our stock market recovering only after the problems of the U.S. financial system have been solved and that will not happen this year,” Pasol told SeeNews in an interview.

“Romania is disconnected from global trends in terms of the wider economy. […] But if we look at the capital market, I don’t expect it to delink significantly, as the index of correlation of the Romania stocks with those in the U.S., for example, remains quite high.”

Romanian stocks have been trading on the downside for more than a year now, affected by the global liquidity crisis, which prompted international investment funds to flee the emerging markets, shifting their focus to instruments with a lower risk exposure.

“As a result, the market in 2008 has been dominated by individual players with short-term investment plans. The big declines on the bourse came as a major surprise to them, but have taught them a lesson for the future,” Pasol said.

Foreign investors have not turned their back entirely on the Romanian market, but most of them just stopped buying, he said.

Pasol expects investors to be interested mostly in the services sector in the future but does not rule out adjustments to their stock preferences.

“It all depends on the price level where a stock will stabilise […], but also on the individual performance of the listed companies.”

RISKS FOR ROMANIAN PRIVATE PENSION FUNDS

Pasol said there were no risks to the Romanian private pension funds with regard to the persistent losses on the BVB.

“The private pension funds, launched fairly recently in Romania, entered the market with a very prudent strategy, taking into account the current state of the capital market […] and their exposure to the market is not substantial.”

“Moreover, the fact that the pension funds entered the market only recently means that they did not buy stocks at their highest levels in the summer of last year, but much later, in the spring and summer of this year, at much lower price levels,” Pasol said.

EU member Romania, a country of 21.5 million, has 14 mandatory and nine voluntary pension funds. The net assets managed by the country’s private pension funds exceeded 227.4 million lei ($87 million/61 million euro) at the end of June.

CORPORATE BONDS AS ALTERNATIVE FINANCING

Despite the unfavourable conditions for the launch of an initial public offering (IPO) and the rising cost of credits, companies are not expected to turn to corporate bonds as an alternative funding option, according to Pasol, as this market is still underdeveloped in Romania.

“I don’t expect the [corporate bonds] market to grow in the next few years, as Romanian companies seek mainly bank loans.”

“Along with this source [of financing] there are also the funds provided by the companies’ shareholders, considering that a growing number of Romanian companies are welcoming international groups or private equity funds as shareholders,” Pasol said.

(1 euro = 3.7304 Romanian lei)