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    Evolution of the domestic capital market in 2021. Global financial market peculiarities in the first quarter of 2022.

Evolution of the domestic capital market in 2021. Global financial market peculiarities in the first quarter of 2022.

Bucharest, 26 April 2022 - The Financial Supervisory Authority has published the Report on the evolution of the capital market in 2021. However, the analysis also captures topical issues on how equity and commodity markets have reacted in the context of the war in Ukraine.

The armed conflict in the neighbouring country has fuelled investor interest in gold, which is seen as a safe investment in times of political and financial uncertainty. Since the beginning of the war, gold prices have risen steadily. At the end of March 2022, gold was trading at a price of $1,941.15 per ounce, 20% higher than at the start of the pandemic (March 2020). In the same context, the price of a barrel of oil rose in March to 2014 levels, trading on 31.03.2022 at $107.46/barrel.

At the same time, against the backdrop of the war in Ukraine, the share prices of most banks and financial institutions listed on European stock exchanges have seen falls approaching those at the start of the pandemic. Compared to the end of 2021, significant falls were recorded in March 2022, with the stock exchanges of Austria (-20.94%), the Netherlands (-11.77%) and Belgium (-9.49%) standing out.

Energy companies have been hit by the war in Ukraine, with declines comparable to those since the start of the pandemic. Stock market indices and traded asset prices also experienced high volatility amid the high degree of uncertainty caused by the volatile geopolitical and military environment.

As a result of economic expectations related to the effects caused by the current healthcare crisis, contagion declined significantly in the first two quarters of 2021, but began to advance rapidly in the last two quarters of 2021 as a result of the accelerating growth trend in most equity markets. The war in Ukraine led to a pronounced acceleration of contagion among European stock markets in the first quarter of 2022.

"The current context calls for caution and specific measures aimed at maintaining a balanced capital market and the economic health of the players operating in this sector. Prudential supervision of market entities, diversification and valuation rules for investment fund portfolios and risk management mechanisms are absolute priorities for us," said Nicu Marcu, Chairman of the Financial Supervisory Authority.

The tense situation between Russia and Ukraine is also having a significant impact on world grain and energy markets, which will be reflected in higher food prices, with import-dependent developing countries being the hardest hit. With exports from Ukraine and Russia disrupted due to the war, at the end of March 2022, the benchmark wheat contract on the Chicago Board of Trade (CBOT) appreciated by about 63% compared to the same period last year, reaching historic highs. Corn quotations also appreciated, reaching nine-year highs. Russia and Ukraine account for 30% of world wheat trade and 20% of world corn trade. As a result, the ability of grain-importing countries to buy wheat has been reduced.

Growth on almost all levels of the domestic capital market in 2021

Last year, the indices of the Bucharest Stock Exchange (BVB) had a positive evolution. The BET index, the benchmark for the local stock market, which captures the performance of the most traded companies on the BVB's regulated market, was up more than 33% compared to the end of 2020.

The total value traded on the Regulated Market and SMT reached 21.63 billion lei in 2021, up by 16% compared to the previous year, while the number of transactions carried out on the BVB increased by 55%.

Equities remain the dominant financial asset class, accounting for 57% of the total value traded on the BVB by 31 December 2021. In the fourth quarter of last year, the value of transactions in government securities showed an upward trend compared to the same period of 2020, recording an increase of 22%.

At the end of 2021, the market capitalization on the Regulated Market reached 229.08 billion lei, up by approximately 48% compared to 31 December 2020.

The number of issuers that have resorted to trading on the Multilateral Trading System administered by the BVB without prior approval of a prospectus by the A.S.F. amounted to 20. At the same time, during 2021, the total value of primary public offerings amounted to approximately 210 million lei. For 10 of the issues, shareholders also approved the trading of pre-emptive rights, and for one issuer, shareholders also approved the trading of allotment rights.

"The fact that more and more companies are turning to the capital market is a sign that we are on the right track. We are seeing companies in a variety of industries, growing trading volumes and healthy fundamentals, which means the capital market is starting to become an option for financing company growth. We are seeing a clear trend reversal: while until recently the stock market was looking for new issuers, today issuers are coming to the stock market in increasing numbers," says Mr. Nicu Marcu.

During 2021, 28 alternative investment funds were authorised, representing both newly established entities and entities that were required to comply with AIF legislation. Also during 2021, two new entities were registered as alternative investment fund managers, companies that have expressed their intention to set up alternative investment funds in the private equity and venture capital category.

CIU assets, close to 50 billion lei

The most active intermediaries on the BVB (regulated market and MTF) were multilateral trading facilities, the value of which was approximately RON 24.07 billion. Local intermediaries (financial investment services companies and credit institutions) accounted for about 92% of the total value brokered, while intermediaries authorised in other EU Member States, which traded on the spot markets, had a combined market share of 7.8%.

At the end of December 2021, 18 investment management companies (IMC), 82 open-ended investment funds (OIF), 25 closed-ended investment funds (CIF), 5 financial investment companies (FIC), Fondul Proprietatea (FP) and 4 depositaries were operating in Romania.

The total value of assets of collective investment undertakings (CIUs) was 49.98 billion lei as of 31 December 2021, an increase of about 21% compared to the previous year. An analysis by category of collective investment undertaking shows that, at the end of 2021, total assets of IMCs increased by 21% compared to the end of December 2020, with the FP recording the most significant increase in total assets (33%) compared to the end of 2020.

The FICs' combined net assets increased by about 19% at the end of December 2021 compared to the same period of the previous year. On the market as a whole, the consolidated investment structure of all collective investment undertakings indicates a preference for equities, whose total value was about RON 26.5 billion, reaching a share of about 53% of the cumulative assets of CIUs.

Investments in fixed-income financial instruments at the level of the whole market amounted to 20 billion lei and represented about 40% of the total assets of collective investment undertakings. As at 31 December 2021 compared to the end of 2020, there was an increase in investments in equities (35%), UCITS/OCIU securities (37%), bonds (4%) and deposits and cash (15%), while investments in government securities decreased by about 10% at the same time.

The report on capital market developments in 2021 can be found HERE.