2008 at Bucharest Stock Exchange
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Aprilie 2009 |
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ALIN BARBU - Director General
MARIANA CIUREL - Strategy and International Alliances
BURSA DE VALORI BUCURESTI S.A. |
Adresa
Bulevardul Carol I, Nr. 34-36
Cladirea IBC Modern, Etaj 13-14
Bucureşti, Sector 2
Telefon
+40-21-307.95.00
Fax
+40-21-307.95.19
Website
www.bvb.ro
ALIN BARBU
Director General
BURSA DE VALORI BUCURESTI S.A.
MARIANA CIUREL
Strategy and International Alliances
BURSA DE VALORI BUCURESTI S.A.
The 2008 marked one of the most intricate years in the modern evolution of the Romanian capital market in general and the Bucharest Stock Exchange in particular. After more than a decade of trend-up indicators and exchange indices, emphasized and sustained by the recent EU integration process, 2008 showed a downgrading slope of the market prices and turnover.
Through their fundamentals of functioning, the stock exchanges have always been highly sensitive to the changes in investors’ behavior over the evolution and the perspectives of the real economy and the financial system. In today’s environment, where globalization is a fact of the modern world, investors consider, when taking an investment decision, not only the performance of the national economy, of the listed companies or of the domestic socio-political climate, but increasingly of the movements taking place at international level. The domestic capital market sensitivity to external sectors has increased in the last years, mainly with our economy opening and the capital account liberalization. That is why, even if on national side there are various factors susceptible for creating incertitude on investors – e.g. the elections of 2008, the movements on the currency markets – the BVB latest evolution has been highly influenced by the patterns of the global financial climate.
Global financial crisis
The statistics data available at the end of 2008 drafted for the global economy a completely different scenario from the one of the previous year. With the economies of the United States, Euro zone and Japan already in recession, the global economy seems to be entering in a very difficult period. Like the history has showed us, the problems of the real economy were forecast or even induced by the crisis in the financial markets.
The first eloquent signs of the phenomena which were going to become a financial crisis appeared at the beginning of 2007, when the US real estate market started to show its risks and weaknesses. The propagation of the US subprime effects was very rapid, this being possible also through the development reached by the brokerage activities in the last two decades. The classic model that stood for a long time as a basis for banks financing has changed in the last decades mainly due to the discovery and the large scale use of securitization – financial mechanism through which the loans offered by a bank can be structured in complex financial instruments, mainly the bond type (the “originate and distribute” model). Afterwards these instruments were freely traded in the market with the involvement of various financial institutions, and consequently, it started to become more and more difficult to identify and to evaluate their related risks. This was also the case with the mortgage-backed securities of the subprime category. Locating these risks for one bank or another (especially for the investment banks) present on the market and quantifying their exposure to the toxic assets were merely impossible; this was due to the fact that trading was mainly OTC, non-transparent, contributing thereby to the spreading in the market of a general sentiment of mistrust. The uncertainty climate generated an increased aversion to risk in investors behavior, who tried to limit their exposure to risky financial instruments or to instruments which are traded on markets with high volatility (the emerging markets are perceived like that). At the mid of 2008, the serious decreases registered by the equity markets were followed by important corrections in the commodity prices. This suggests that investors are convinced that the effects of the financial crisis are more serious than initially considered. And the statistics at the end of 2008 confirm this.
All these evolutions of the international markets have determined unprecedented reactions from the national and international institutions responsible for ensuring the stability of the financial system. Their interventions in 2008 didn’t limit to concert actions for reducing the interest rate or for assuring the necessary liquidity in the market: there were launched programs meant to support financial institutions in difficulty, by involving public resources for financing mergers and acquisitions, by extending the type of securities accepted by the monetary authorities as collateral, by buying toxic assets and even by nationalizing large financial institutions. Some of these examples are: the salvation from bankruptcy of Bear Stearns through acquisition by JP Morgan, the nationalization of Northern Rock, the take over of Merrill Lynch by Bank of America, the nationalization of the real estate giants Fannie Mae and Freddie Mac, followed by a similar decision for AIG. Even though these events have mainly taken place on the USA stage, their effects have been strongly felt by the European financial markets.
Bucharest Stock Exchange in 2008
In such a hostile climate as presented above, it would have been practically impossible for the emerging markets of CEE, Romania included, to continue their last year positive evolution. Thus, even from the beginning of 2008, the traditional January effect has been completely ignored by investors and, consequently, felt by the prices of the listed companies, so it became pretty obvious that 2008 would have been a special year for the Bucharest Stock Exchange.
After drops of around 30% in the exchange indices in the first trading weeks of 2008, a period of calm followed, which gave the impression that we were in a scenario in which the negative corrections of the market prices seemed natural after the sustained increases registered by the exchange indices before and after Romania’s EU integration. Such a technical explanation sounded possible as the financial results reported by the listed companies were positive and the macroeconomic indicators were still robust. But the turbulences of the international financial markets left back the fundamental corporate data and, gradually, the correlation of BET, BET-FI and BET-XT indices with other foreign exchange indices became the main factor in the investment decision making process. The support of this statement comes from the way the investors in the domestic market reacted after S&P and Fitch reduced the country rating: the indices increased in strong correlation with the movement of the international markets of the following days.
Indices
With a liquidity lower than the one of the US, European or Asian markets, the contagion phenomenon that existed for a short period between BVB indices and other international ones caused an extremely high volatility in the market. As consequence, for a few days of Q3, 2008, some of the most liquid companies listed on the exchange remained without Bid quote, so the Bucharest Stock Exchange had to halt the trading session for the first time ever due to the high volatility of the prices. Even with a price tunnel of ±15%, below of the ones applicable by other international exchanges, the BVB indices registered one of the highest losses of European indices. Therefore, at the end of 2008, BET was 2,901 points, 70% down than the start of the year. Otherwise, the maximum value of the Bucharest indices was reached at the beginning of the year.
