Romanian equity has returned 25% over a year
Romania’s stock market has been largely outperforming frontier markets since last year. Over the past one year, Romania’s Bucharest Stock Exchange Trading Index has returned about 24.5%, while the broad MSCI Frontier Markets index (FRN) (FM) has returned almost 12% (as charted below).
Stocks of companies such Banca Transilvania SA, Transgaz SA Medias, Transelectrica SA, ROMGAZ SA, OMV Petrom SA, and Fondul Proprietatea SA/Fund, are up over 30% over the past 1 year (as of February 14).
| Ticker | Name | Weight | Shares | Price | 1 Year Total Return – Current |
| TLV RE Equity | Banca Transilvania SA | 18.81 | 2176.69 | 2.46 | 51.80472 |
| TGN RE Equity | Transgaz SA Medias | 6.76 | 5.89 | 327.00 | 43.18035 |
| TEL RE Equity | Transelectrica SA | 4.20 | 36.65 | 32.60 | 32.77653 |
| SNG RE Equity | ROMGAZ SA | 11.15 | 115.63 | 27.45 | 31.57254 |
| SNP RE Equity | OMV Petrom SA | 16.92 | 16993.23 | 0.28 | 31.55452 |
| FP RE Equity | Fondul Proprietatea SA/Fund | 20.33 | 6504.11 | 0.89 | 30.8405 |
Romania is on the last mile to be upgraded to EM
Romania’s Bucharest Stock Exchange CEO Ludwik Sobolewski believes that his country is on the last mile to be upgraded to the emerging market (EEM) (VWO) status. “The Romanian capital market has now a chance, maybe for the first time, to have a big quick win because the upgrade of the whole environment into the family of Emerging Markets is now very close. We have this paramount objective which we need to tackle: to upgrade Romania to Emerging Market status,” said Sobolewski.
According to the Chairman of the exchange, Lucian Anghel, “funds who are 20-25 larger than current ones will be allowed to invest in Romania once the market gets upgraded.”
Hidroelectrica listing is crucial for Romania
However, the local stock market still needs big companies listed with a high free-float to fulfill all criteria for attaining the emerging market status. For example, the listing of the state companies could help towards that goal.
Now, electricity producer Hidroelectrica, the state’s most valuable company, is expected to carry out an initial public offering (IPO) this year. Hidroelectrica’s listing should really help Romania in complying with the free-float criterion in being declared as an emerging market.
The country is already on the FTSE Russell watch list for an upgrade to emerging market. Listing of Hidroelectrica on the stock exchange might just ensure a place for the Bucharest-listed equities in the MSCI emerging market basket.
Valuations favor Romania
On the valuations front, Romanian equity appears cheaper than broad frontier and emerging markets (as charted below).
Moreover, earnings are on the rise, while the price is on a declining trend currently, making the Romanian stock market attractive on an absolute basis (see chart below).
