Yesterday, we brought you the analysis of the bid/ask spread of the Croatian and Slovenian blue chips, which you can find here. Today, we’re bringing you an overview of the Romanian blue chips.
In comparison to the Croatian and Slovenian stock exchanges, while small compared to developed market standards, the Bucharest Stock Exchange is quite large. Its main index is composed of 20 blue chips, as compared to 10 in Croatia, and 9 in Slovenia.
Most of these companies have solid liquidity on the market, and the retail investor participation is a lot higher. Due to these factors, Romanian companies are easier to trade, especially in larger quantities. As such, it isn’t surprising when we look at the average bid/ask spread of these companies: for all of them, it’s below 1%.
Average bid/ask spread of Romanian blue chips in 2023 (%)*
Source: Bloomberg, InterCapital Research
*Hidroelectrica’s bid/ask calculated as of listing in July 2023
Furthermore, most of these companies, 15 to be exact have at least one dedicated market maker. Several of these have 2, and Fondul Proprietatea has 3. Even if we were to look at the bid/ask spread on certain days, it mostly ranges between 0% and 3% for these companies, with only several ranging above this level.
Price change of Romanian blue chips in 2023 (%)*
Source: Bloomberg, InterCapital Research
*Hidroelectrica’s price change as of listing in July 2023
What is really interesting, however, is that this bid/ask was maintained even though most of the companies recorded significant growth during the year, with 16 out of 20 companies recording >10% growth, 9 companies recording over 30%, and 1 company recording triple-digit growth. Fondul Proprietatea on the other hand, recorded a decline in value but this is related to the IPO of Hidroelectrica and the subsequent dividend payment from the proceeds of the IPO, which reduced the value of the Fund.
To achieve this overall growth, the Romanian blue chips had to have a lot of days of price growth during 2023, and on those days the volatility of the bid/ask spread was wider, but still small. This is one of the many advantages of a more developed market, and it creates a positive loop of further development. Good liquidity and low costs (such as transaction costs in the bid/ask) attract more retail investors whose participation increases liquidity, and the cycle continues.
Of course, other factors play a role, such as regulations and laws, but especially a strategy of capital development. Furthermore, given the listing of Hidroelectrica and the size of other companies, Romania is also set to be given an Emerging market status, which would attract even more investors, especially foreign.
Taking all of this together, some lessons could be applied to other regional markets. As we can see from Romania’s case, it’s many different things working in unison that drive the development. While strides are taken in Croatia and Slovenia as well, more could be done, like defining the capital market development strategy as well.
