Stand by for Better Times

Septembrie 2008

IULIANA SIMONA MOCANU - Head of Research Department RAIFFEISEN CAPITAL & INVESTMENT

Bucharest Stock Exchange (BVB) experienced a strong correction over 1H 2008, with the lows of the period being touched at the end of June. BET and BET-C indices went down 34% and 30% respectively and as RON depreciation vs. the EUR slowed down, the EUR-based returns stood only 1% lower. The EUR-based market capitalization surged 23% to EUR 30.3 bn, as Erste Bank began trading on the local exchange.

In the second half of 2007 the market seemed to react less aggressively to the downturn of the international markets and the weak domestic macro environment, BET closing almost flat over the period. However, in the first semester of 2008 the stock prices plummeted, as the crisis on the international markets deepened and as investors became aware that the downturn could spread over a longer period of time.

We see no triggers for a fast upturn of the market in the very short run. Still, we do not believe the losses will go to the extent reached in 1H 2008. We think that there are chances for a recovery closer to end of the year, if the international context improves and if Romania’s macroeconomic situation does not worsen. We focus in 2H 2008 on companies that we believe may outperform the market and resist through the extended downturn: Petrom, Azomures, BRD-GSG and Rompetrol Well Services. We recommend also adding on a watch-list Socep Constanta and Armax Gaz and the five financial investment companies that currently trade at large upsides to their Net Asset Values.

Five IPOs took place in 1H 2008 but with the market downturn, in 2H 2008 we might see only the listing of a 5% stake in the state-owned Henri Coanda airport. The consumer electronics retailer TechnomarketDomo has also postponed its listing for the autumn.

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