The victory of centrist candidate Nicușor Dan in the second round of Romania’s presidential elections was favourably received by financial markets, which reacted this morning to the prospect of a pro-European and reformist government.
After a period of heightened volatility, fuelled by political and economic uncertainties generated by the first round of elections, in which isolationist candidate George Simion scored an unexpectedly high victory, the markets are recovering. The national currency, which had hit an all-time low of 5.1222 lei/euro on 8 May, opened the week in the green, appreciating to around 5.05 lei/euro on the morning of 19 May. The strengthening of the national currency seems to reflect investors’ confidence in the new administration’s ability to implement prudent fiscal policies and maintain macroeconomic stability. JP Morgan emphasised that Dan’s victory reduces political risk and eases fears of a possible downgrade of the sovereign rating below investment grade.
On the bond market, yields on Romanian government bonds have started to fall, signalling a reduction in the risk perception associated with government debt. After 10-year bond yields had risen to 8% following the first round, amid fears of possible international isolation and deteriorating public finances, they began to moderate as the country’s political direction became clearer.
The Bucharest Stock Exchange also reflects investors’ optimism. The BET index, which tracks the 20 most liquid listed companies, was up 3.14% in the Friday 16 May session ahead of the second round of elections. The positive trend continued after the announcement of the final results, signalling in the first hour of Monday’s trading a recovery in confidence in Romania’s economic outlook, with gains of 3-4 percentage points for all main indices.
Overall, the positive reaction of financial markets to the election of Nicușor Dan as President suggests an expectation of a period of stability and reforms oriented towards fiscal consolidation and further European integration. Challenges are certainly not lacking and the formation of a majority government and the implementation of a coherent fiscal package remain key priorities to maintain investor confidence and ensure sustainable economic growth.