This piece of information is brought forward by the attorneys at law of Zamfirescu Racoți Vasile & Partners.
Romania has been reclassified from frontier to secondary emerging market effective from September 2020, FTSE Russell announced following its annual review of the country’s capital market. This means that large funds which were restricted to act in frontier markets could invest here, improving the development of the capital market. The problematic criteria which have put Romania on stand-by for three years since it was included on the FTSE Russell watch list was that of liquidity, namely the volume of transactions.
The status upgrade follows the fulfillment of the liquidity conditions, market improvements and legislative changes implemented by the Romanian authorities.
In the last three years, Romania has repeatedly proved itself as being a functional and accessible market and the status upgrade will make more managers from state-owned and privately held companies see the stock exchange as the go-to place where they can further develop their businesses.
BSE upgrade is considered the best news in the Romanian economy in the last 30 years, comparable with Romania’s accession to the EU, due to the opportunities it can provide. However, there is still the possibility of downgrading again to the frontier marker status. FTSE Russell has a number of criteria that must be met in the case of promotion, but also for avoiding downgrading. Romania will be on the watch list until September 2020. There are many benefits to be considered by potential investors and, in this regard, the following defining characteristics of an emerging market are taken into account:
Potential for growth: In the actual context, Romania masters a less mature capital market due to the difficulties that may occur when obtaining information on companies listed on stock markets and the inconveniences that may arise when making transactions on the secondary market. Despite all the risks, Romania’s capital market shapes up a greater reward for investors, that lies in a higher-than-average return for investors because it focuses on an export-driven strategy.
Currency swings: It is common knowledge that Romania is not included among countries with enough power to influence currency or commodities swings. This lack of power explains the measures taken for industrialization that may further cause loss for many sectors of the population.
High volatility: Romania’s lack of political stability is one obvious cause for less predictability. Such insecurities affect the returns of firms and industries that are politically sensitive, resulting in weaker economic conditions and the potential for stocks to become more volatile and more correlated. A possible antidote for political inconsistency caused by legislative stability may be the base provided by the European Union due to the harmonization of many laws across the union.
Lower-than-average per capita income: Most emerging capital countries are defined by the indicator that reveals the income earned per person in an area, as being lower than average. The less the earning power of an individual is in a country, the more willing the leaders are to undertake rapid change measures to a more industrialized economy. Such aspirations demand a faster absorption of investors that sets premises for developing on multiple levels.
It is certain that Romania’s capital market will face complex transformation, but optimistic odds are forecasted not only for a stronger communication bridge between private and public areas but also for a more predictable and stable market.