During 2024 thus far, 9 out of 20 companies recorded higher returns than the BET index. At the same time, in terms of trading days, 4 out of 20 companies either matched or outperformed the index more than 50% of the time, 2 came extremely close to matching it, while many underperformed as compared to the index.
Overall, the Romanian equity market thus far in 2024 has recorded solid returns, with 2 companies, i.e. recording >50% returns, while 13 out of 20 BET members recorded double-digit returns, 3 recorded single-digit returns, and 5 recorded losses, of which 2 recorded double-digit losses.
YTD performance of BET constituents (2024 YTD, %)
Source: Bloomberg, InterCapital Research
Looking at the performance more closely, Transelectrica recorded a 58% return in 2024 YTD, followed by Sphera Franchise Group at 52%, Digi at 48%, MedLife at 43%, and Electrica at 40%. On the other hand, Fondul Proprietatea recorded a 24% loss, One United Properties recorded an 11% loss, and Transport Trade Services recorded a 7% loss. While there are many reasons for the performance, varying between companies and sectors that they operate in, there are some general factors that for sure influence these returns. Firstly, the inflation rate, while elevated has come down much lower as compared to its levels in 2022 and 2023.
Furthermore, this led to the recent decisions by the ECB and the Romanian National Bank to reduce key interest rates by 25 bps, to 3.75% and 6.75%, respectively. These reductions generally have a positive impact on equity, which led to the overall good performance of the BET index thus far in 2024, with a YTD increase of 21%.
YTD performance of BET constituents as compared to the BET index (2024 YTD, p.p.)
Source: Bloomberg, InterCapital Research
Comparing the performance of individual companies as compared to BET, Transelectrica outperformed the index by over 37 p.p., followed by Sphera Franchise Group at 31 p.p., Digi at 27 p.p., MedLife at 22 p.p., and Electrica at over 19 p.p. On the flipside, Fondul Proprietatea underperformed the index by over 44 p.p., One United Properties by 32 p.p., Transport Trade Services by almost 28 p.p., and Nuclearelectrica by 25.4 p.p. What this can tell us is that while it is possible to make returns higher than the index, focusing on individual stocks is often far riskier as any shocks on the market will be absorbed far worse by an individual company than a whole index, but vice versa is also possible.
Besides raw returns, it is also prudent to look at the performance of individual companies as compared to the index, in terms of trading days on which the former or the latter performs better. While by itself it cannot tell us much, in combination with the overall returns it can give us insight into the market dynamics in the Romanian market.
How often did BET constituents outperform the index (number of days in 2024 YTD, %)
Source: Bloomberg, InterCapital Research
As we can see, there are only several individual companies that recorded positive returns on more days than the index. Due to these members’ weightings in the index, any increase they experience gets translated to the index based on their weight, while any decrease is also reflected there, to a lesser extent. In 2024 YTD, only 4 companies outperformed or matched the index in this metric, with Banca Transilvania outperforming the index on 53% of the days, BRD at 52%, Transgaz at 51%, and Electrica at 50%. On the other hand, BVB outperformed the index on “only” 38% of the days, as did Teraplast, One United Properties, and Nuclearelectrica.
Overall, this data can show us that while individual investments and returns on them are possible, investing in an index, especially one that tracks the performance of the blue chips of a given country does have its benefits. Risk reduction is the primary one, and lower transaction costs are the other. Furthermore, given the fact that ETFs are available on many indices, lower management costs are also present. Lastly, many of the ETFs, such as the ones tracking CROBEX10 TR index (tickers: 7CRO on ZSE, ICCRO on LJSE), SBITOP TR index (tickers: 7SLO on ZSE, ICSLO on LJSE), and BET TR index (tickers: 7BET on ZSE, ICBET on LJSE, ICBETNETF on BVB) are also total return index, meaning that dividends, which can range between 3-4% for Croatia, up to 5-8% in Slovenia and Romania, are reinvested, meaning no dividend tax has to be paid on them.
