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OLEG GALBUR
Head of Research
RAIFFEISEN CAPITAL & INVESTMENT S.A.
1H 2009 wrap-up
Crisis priced in, recovery not yet in sight
After a steep downturn in 2008, when the stock market fell by more than 70%, the first half of 2009 saw a V-shaped evolution. The main reasons that stood behind the market fall in the first part of the semester were the negative international context, which augmented investors' risk aversion towards emerging markets, the deteriorating local macroeconomic indicators and RON depreciation. The funding agreed with the IMF together with the revival of the international markets pushed up the prices of the local listed companies until the end of June.
The financing provided by IMF represented a breath of oxygen at the time, which curbed investors' worries over Romanian economy. However, GDP fell 6.2% in 1Q 2009, and we revised our estimates for the GDP drop in 2009 at 6% yoy. We expect the recovery to be lengthy, with the GDP growing 1% in 2010, the growth rate accelerating in the next years towards 4.5%. The conditions imposed by the IMF, especially the budget deficit target of 4.6% for the end of 2009, seem harder to comply given the higher than predicted GDP contraction, below expectations budget revenues and lack of political will to cut expenses. Construction sector and more specifically the infrastructure works were expected to drive the economy in 2009, but most probably the government will be forced to limit the infrastructure spending.
We revised downwards our sales and profit estimates for the companies covered and concomitantly raised the cost of capital estimates. We see no triggers to determine another price rally in the next six months. We believe that the current price levels take into account the weak performance expected for 2009 and we keep most of the companies covered on the "hold" list. In the same time, we continue to favor the SIFs as their prices continue to trade at large discounts to their NAVs.
1H 09 BET Index Evolution 1H 09 BET-FI Index Evolution (RON)
Bucharest Stock Exchange: Main Performance Indicators
Source: BVB, RCI Research
Market developments
After a steep downturn in 2008, when the stock market fell by more than 70%, the first half of 2009 saw a V-shaped evolution. The equity market continued its downward trend in the first two months of the year, after which it began to recover until the middle of June.
BET dropped around 35% from the end of 2008 to reach the period low close to the end of February and rose more than 90% from the minimum to June 11th, where it touched the high of the period. The index lost 6% against the high until the end of June and overall it gained 18% from the beginning of the year. BET-FI shrank 37% to reach the low of the period on February 24th and rose 112% from there to the end of June. The SIFs received an additional boost with the legislative proposal of some deputies and senators to abolish the 1% ownership limit.
The recovery appears to be underpinned to a large extent by two factors: on one side the agreement for the EUR 20 bn external financing package, and on the other hand the upturn on the international markets. The timing of the two matched, which helped to sustain the uptrend.
OPINII
