In the world of investing, people often look for better ways to increase their returns. Often, this takes shape in the form of trends and cycles, such as the current AI boom, where everyone’s following how these companies perform, or the plethora of previous trends, such as those in IT, telecom, or, if you want to go really back, the railroad industry. However, just looking at certain sectors with potential does pose a risk, as usually these trends grab a lot of attention and attract a lot of investments, both ones based on sound decisions but also ones made on emotions, the ever-present FOMO (Fear of Missing Out). Instead, today we look at a more structurally stable story, not the next speculative wave, but a multi-year convergence play driven by institutional reform and infrastructure modernization. Rather than chasing momentum in AI or crypto, we examine how one unlikely market has outperformed the rest of the world, and why, more importantly, it has the potential to continue doing so.
When we talk about investments, people usually make a trade-off between two sides: the returns and the risk involved with a certain level of returns. Higher returns naturally often imply higher risk involved. Yet Romania’s stock market has been defying this conventional wisdom over the past year, delivering a staggering 60% return while operating under conditions that should have triggered a market collapse: the European Union’s worst budget deficit, annulled presidential elections, and credit ratings sitting one notch above junk status. What makes Romania unusual is its combination of frontier market valuations paired with increasingly developed market regulatory frameworks. Combined, these create an asymmetrical risk-reward profile that defies conventional efficient market wisdom.
Romania isn’t alone in Southeast Europe’s recent outperformance—Croatia’s CROBEX reached its highest level since 2008, while Slovenia’s SBITOP hit all-time highs in early 2026—but it represents the most dramatic and counterintuitive story in the region. While its neighbours benefited from euro adoption, strong tourism, and EU fund deployment, Romania’s rally occurred despite a fiscal crisis that by all conventional measures should have devastated investor confidence. The Bucharest Stock Exchange’s BET index surged from roughly 24,000 points at the end of 2025 to breach 28,000 points in early February 2026, an all-time high. Understanding why Romania’s market rallied amid chaos offers insights into how markets price political risk, fiscal reform credibility, and structural convergence—lessons that extend far beyond this corner of Europe.
Performance of select indices (2015 – 2026 YTD, %)
Source: Bloomberg, InterCapital Research
As we can see, despite all the hype and returns recorded by the main American index – S&P 500, it is still far below the returns recorded by a much less well-known country – Romania. Romania’s 60% gain in the past 12 months presents a real paradox: conventional market wisdom says stock markets collapse when countries face fiscal crises – yet Romania’s main index, BET surged to all-time highs above 28k points while operating under the EU’s worst budget deficit (9.3% of GDP) and sitting one notch above junk status at BBB-/Baa3 negative from all three major rating agencies.
The key to understanding this paradox lies in timing and investor psychology. Through early 2025, the BET index actually sat 3% below its level at the start of the year, weighed down by annulled presidential elections in December 2024 and mounting fiscal pressure. The turning point came on May 18, 2025, when centrist Nicușor Dan won the presidency, triggering an immediate 20% rally through late July. The new Government under Prime Minister Ilie Bolojan then implemented precisely the painful reforms credit agencies demanded: VAT rose from 19% to 21%, dividend taxes jumped from 10% to 16%, bank revenue taxes doubled to 4%, and public wages and pensions were frozen through 2026. These measures crushed near-term growth, with the Romanian GDP growth estimated at just 0.7% for 2025. However, with this move, they accomplished something more important: they signalled credible commitment to fiscal consolidation.
Rather than pricing in disaster, the market priced in resolution. Investors weren’t betting on Romania’s current crisis, but on its path out of it. The aggressive fiscal measures, while economically painful, prevented a downgrade to junk status that would have triggered forced selling by institutional investors, spiked borrowing costs, and potentially jeopardized Romania’s EUR 21.6n allocation from the EU Recovery and Resilience Facility. The market anticipated that credible reforms would unlock this EU funding and position Romanian companies, particularly in energy, infrastructure, and utilities, to benefit from Europe’s modernization imperative. This, in essence, is a similar dynamic that has been playing out in the US. Both countries faced large structural deficits, yet both saw stock markets rally as investors focused more on corporate fundamentals and sentiment rather than fiscal health.
Select* Romanian blue chips’ performance (As of 12 February 2026, YoY, %)
Source: Bloomberg, InterCapital Research
*All blue chips with a weight of >1% in the BET index
The market’s confidence wasn’t misplaced. Underlying the index’s performance were genuine corporate fundamentals, with Romanian blue-chips delivering broad-based gains. Energy and utility stocks led the charge: Transgaz grew by an amazing 180%, Electrica gained 98%, Transelectrica rose 97%, and Romgaz climbed 93%, all driven by the Neptun Deep offshore gas project in the Black Sea and energy transition investments. Telecom giant Digi Communications rose 80%, healthcare provider MedLife gained 73%, while Banca Transilvania, the country’s largest bank by market cap, gained 33% with a 22.3% return on equity and a 6.5% dividend yield.
Several of these companies recorded triple-digit returns, while most delivered gains above 50%. This is a clear signal of how undervalued Romanian equities had been relative to Western European and American peers. In other words, with the diversification across energy, real estate, finance, telecom, and manufacturing, Romania isn’t a single sector bet. It could be called a broad-convergence play on a reforming frontier market transitioning towards emerging market status.
Despite the dramatic rally, Romanian equities haven’t entered market “bubble” territory yet. The BET index now trades at a P/E of 14.5x, above its 3-year average of 9.4x, but still below the Euro STOXX 50’s valuation and far cheaper than the American large-caps. The re-rating from 9.4x to 14.5x implies the market is pricing in sustained double-digit earnings growth, an expectation supported by Romania’s energy sector positioning, EU fund deployment, and the post-reform corporate environment.
The BVB’s entire market cap has only crossed the symbolic EUR 100bn mark for the 1st time in December 2025. Yet, this represents less than half the value of a single European giant such as LVMH, just showing how much runway remains for further convergence.
There are further positives for the country and its stock market. The classification into the emerging market status by MSCI could be achieved, as Hidroelectrica already fulfils all the conditions (size, free-float, turnover thresholds), while Banca Transilvania and OMV Petrom are not far behind.
At the same time, the capital market integration initiative, signed between Romania and 7 other SEE/CEE countries in August 2025, could accelerate this timeline. The memorandum aims to create a unified trading hub serving app. 85m people, with harmonized infrastructure and cross-border liquidity. If achieved, it would boost the trading volumes across all exchanges involved, supporting faster growth than the individual market by itself could achieve. If the emerging market status is achieved, it would trigger billions in passive inflows from index-tracking funds, creating a self-serving cycle of growth, liquidity, and valuation expansion.
The country’s energy sector could also come into play. For example, the Neptun Deep Projects, developed by OMV Petrom and Romgaz, is a EUR 4bn investment and is expected to cover 10% of Romania’s natural gas consumption by 2030, starting in 2027. The country has a developed renewable energy sector and even more ambitious targets within it, while companies such as Electrica and Transelectrica stand to benefit from grid modernization.
Lastly, Romania is allocated EUR 21.6bn through 2026 in the EU Recovery and Resilience Facility funds, with a total of EUR 79bn that Romania has access to in various EU funds through 2027. Although historically the rates of absorption were low, if improved, they could benefit the entire country strongly.
Risks do remain; the political stability in the country is fragile, while the fiscal consolidation efforts might stall if populist pressures mount ahead of future elections. Germany’s economic slowdown poses headwinds for export-oriented Romanian manufacturers, while the EU’s absorption of the country’s labor, i.e. brain drain, constrains long-term productivity growth.
To put valuations in perspective: Romanian stocks trade at a 30% discount compared to the average price for emerging market equities. Institutional investors view this as excessive, with estimates suggesting Romania deserves only a 10% discount to account for lower trading liquidity. Simply narrowing this valuation gap would drive meaningful price appreciation, completely separate from any actual profit growth by the underlying companies.