PwC România: BSE lost 34% since the beginning of the year, yields still over T-bonds


Bogdan Tudorache

Bucharest Stock Exchange (BSE) lost from the start of the year, since the first news about Coronavirus, 34% (EUR 13,2 billion) from the market capitalization, according to ”The Valuation multiples in the context of Bucharest Stock Exchange and local M&A market” report of PwC Romania. Thus, the decrease since the beginning of this year exceeded the increase of 23.4% recorded in 2019 compared to 2018, which marked the best performance of the BSE since the financial crisis. In the last 8 years the average yield registered by the stock exchange indices has exceeded the government bonds yield.

In 2019, BSE’s capitalization increased by 23.4% to EUR 37.8 billion, sustained by high dividend yields, local economic growth above the EU average, promotion to the emerging market status and a series of changes to the legislative provisions.

In the context of COVID-19, BET, the main index of the stock exchange, fell by about 25% between 30 December 2019 and 30 March 2020, from a 35.1% increase recorded last year. The same decrease was registered by the BET-TR index, which includes the first 17 most traded shares, after an advance of 46.9% in 2019.

”The current context of COVID-19 has had a direct impact on capital market development, as a result of investor fears regarding the pandemic. Due to the massive depreciation of the shares, we find that in March 2020, both the volume and the traded value increased approximately twice compared to December 2019. The profit obtained on the capital market was analyzed by comparing the performance of BET and BET-TR with the evolution of state bonds, and from our analyzes, conducted between 01 January 2012 – 30 March 2020, it turned out that the return on the capital market is above that of bonds. This return compensates investors for taking on the relatively higher risk when investing on the stock exchange”, said Sorin Petre, Partner PwC România.

In the period from 1 January 2012 to 30 March 2020, the median excess return of BSE indices exceeded Risk free rate by 4.8% for BET and 13.9% for BET-TR. As far as for the 5-year CDS (Credit Default Swap) evolution, including the cost against non-payment, it is noticed a significant increase of 30% between February and March amid the sanitary crisis driven by coronavirus.

”Romania enters COVID-19 outbreak after 9 consecutive years of economic growth. It is expected that a contraction of the Romanian economy and the degree of severity will depend upon how long COVID-19 pandemic persists. The weakest performance of the BSE in the last 13 years was recorded in 2008, when, due to the recession, the market capitalization level was RON 46 billion, almost four times lower than the maximum level registered in 2019”, said Ileana Guțu, Senior Manager PwC Romania.

The main conclusions of the report for 2019

Romania had a market capitalization estimated at 17.9% of GDP in 2019, which is below the level observed in Hungary, Czech Republic and Bulgaria.

In 2019, the stock market indices hit the highest level in the last 10 years, with BET-TR dividend yield averaging 8% – still at a significant level.

The total market capitalization of the 79 analyzed listed companies (for which financial information was readily available) jumped by 33.4% in 2019 as compared to the previous year.

In 2019, no IPOs were concluded on the Bucharest Stock Exchange. Moreover, the number of companies listed on the main market fell from 87 in 2018 to only 83 in 2019 following the delisting process of Oltchim, Boromir Prod, Amonil Slobozia and Petrolexportimport.

There is a high concentration of listed issuers on BSE regulated segment, with top 5 listed companies accounting for 65% of the total market capitalization at the end of 2019

At the top level, companies are active in the Oil &Gas, Financial Services and Electricity sectors. Therefore, the degree of representation of the economic sectors on the local capital market is low in the absence of several industry leaders.

In 2019, the electricity sector registered the highest level of market capitalization.

The highest P/E multiple was reported in the Healthcare sector whilst the lowest were in the Industrial sector and the Financial services sector.

For the financial services and industrial sectors, the downward trend observed in the last years continued and the valuation multiples of the companies listed on the BSE have decreased significantly and are now at the minimum level of the last five years. The Healthcare sector is at the highest P/E ratio observed in the last five years.

During 2007 – 2019, the market capitalization for companies operating in Materials, Industrial and Healthcare sectors were least influenced by the economic cycles, whereas Consumer and Oil and Gas were the most affected. Over the same period of time, the smallest change in the P/E of companies was observed within Oil & Gas.


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