The Bucharest Stock Exchange seeks an upgrade from "frontier" to "emerging" market
The Bucharest Stock Exchange will have access to funds 20 or 30 times bigger that investors will be wiling to place the moment the capital market moves up to the “emerging market” status, as opposed to the “frontier market” status the Stock Exchange currently has. As the President of the Bucharest Stock Exchange Managing Board Lucian Anghel put it, “The frontier market is the equivalent of the “junk” rating for investments, that is, a market not recommended for investments. There are investment funds which have a policy of not investing in a frontier market. The funds that usually go into emerging market investments are 20 to 30 times greater than those available for frontier markets, where risks are higher.”
Anghel went on to say that in late September, Romania was officially included on Watchlist, the list of the countries with a substantial potential to upgrade their status to that of an emerging market, according to a decision made by FTSE Russell market research agency. "This means we have been short-listed, which acknowledges the fact that our capital market stands real chances of being upgraded to the emerging market status. We’re about to make a beautiful story come true,” Lucian Anghel also said, in an interview to Radio Romania.
Lucian Anghel: ”At the moment, we can say that after three years of being operational, of running thorough projects, we meet all the quality criteria. There’s only one criterion that’s missing, the quantitative one. I believe that upgrading the capital market to the status of emerging market, which is the equivalent of an ‘investment grade’ in other areas, for state bonds, that is, could trigger an increase in the value of the listed companies. This means that the state ought to be the first to be interested in increasing its national wealth, given that the state is the major shareholder in a sizeable part of the large companies listed with the Stock Exchange. Also, pension funds could benefit from that, which means bigger private pension benefits for millions of Romanians, because the value of the assets held by the private pension funds listed with the Bucharest Stock Exchange would increase. So this would benefit the Romanian state, millions of Romanian citizens and of course the capital market itself, which could obviously lead to a higher transaction volume."
”The required quantitative criterion will hopefully be met once Hidroelectrica, the largest hydropower producer in the country, is listed on the Stock Exchange. We believe in this project, it is a national project. Decision-makers support us and we hope Hidroelectrica will be listed next year, which will be a key factor for upgrading,” the president of the Bucharest Stock Exchange board went on to say.
In turn the executive manager of the Bucharest Stock exchange, Ludwik Sobolewski, pointed out that the upgrade to the emerging market status could take place in September next year, and that it mainly depends on the listing of Hidroelectrica. In early October, the Energy Minister Victor Grigorescu says the listing of Hidroelectrica could happen in six months’ time at the latest, and could be one of the most profitable listings ever made by the Romanian state.
Lucian Anghel: ”It is ideal for an economy to have as many financing sources as possible, and the capital market may be one of the alternatives to banking sources. Over one billion Euros has come from the bonds listed on the Bucharest Stock Exchange in the last three years. This mediation instrument has helped companies, has helped banks, has helped municipalities to get financing for their projects, and in this respect I believe this is a good start. Now, in order for the capital market to gain in size and importance, both the demand and the supply need refining. As regards the demand, there are entities that want to invest, both individuals, and financial institutions, such as pension funds, both Romanian and from abroad. On the other hand, as far as increasing the demand for capital investments is concerned, I believe the Bucharest Stock Exchange plays a key role in financial education, which is crucial – you can only make an investment if you’re well informed. I think the Stock Exchange is one of the main pillars for the development of financial education in Romania.”
At present, aside from FTSE Russell, three other leading internationally-recognized institutions, namely MCSI in the US, S&P Dow Jones, also in the US, and STOXX in Switzerland, are assessing Romania’s capital market. “The criteria that have to be met and the analysis process are to a certain extent similar, and are mainly related to the value of transactions and the size of the companies listed with the Stock Exchange. They also look at investors’ easy access to the capital market and the way they can buy and sell shares,” the executive manager of the Bucharest Stock Exchange Ludwik Sobolewski also explained.
(translated by: Eugen Nasta)