Info fonds : MEI Roemenië en Bulgarije Fonds

Compte-rendu de la situation par la société de gestion MEI :

As of Friday 31st October, MEI – Roemenie en Bulgarije Fonds N.V. (RBF) has resumed the issuing of shares. The fund management will address some important topics concerning Romania and Bulgaria by means of Questions and Answers (Q&A).

What is the forecasted economic growth of Romania and Bulgaria for 2008 and 2009 ?
The European Committee (EC) expects an economic growth of approximately 8,5% for Romania in 2008. According to the EC, the Bulgarian economy will grow with 6,5%. Thanks to these economical performances, Bulgaria and Romania are both in the top 3 of the European Union. The expected slowdown, and possible recession, of the Western economies will probably have an impact on Romania and Bulgaria as well. The economical growth is expected to be still far above average. In 2009, the Romanian economy is forecasted to grow with 4,7% and the Bulgarian economy is expected top grow with 4.5% (see table 1).

What is the current situation of Romanian and Bulgarian banks ?
Romanian and Bulgarian banks are confronted with high costs of capital, less liquidity and losses on investments. The banks are still profitable and the necessity of government intervening is not discussed. Financial institutions are financed conservative. The number of questionable credits is very limited. Recently, the Romanian government announced that it will guarantee savings up to EUR 50.000. Currently, the limit is set on EUR 20,000

How strict is the supervision of the Central Banks on the financial system ?
In both countries, the supervision of the Central Bank is very strict. The Romanian Central Bank (NBR) has actively pursued its policy to limit the growth of consumer credit. The NBR uses high reserve requirement: 20% reserve requirement for Romanian lei dominated loans, even 40% for euro dominated loans.

Next to this, the NBR follows an independent policy regarding interest rates. The NBR has raised the most important interest rate to 10.25% in order to reduce the inflation. The inflation rate was in fact reduced from 9.3% (at the beginning of 2008) to approximately 6% (expected at the end of 2008).

What are the main risks for the economies of both countries ?
The deficit on the current account (export minus import) remains the main macro economical issue in both countries. The deficit in Romania is about EUR 18.1 billion, which reflects 13.5% of the GDP. In Bulgaria, the deficit is expected to amount 23% of the GDP. In both countries, the deficit seemed to decrease thanks to a robust growing export. The slowdown in the economic growth has a negative impact on export. At this moment, the surplus on the capital account (foreign investment plus income realised in foreign countries) is sufficient to solve the deficit on the current account. The decline of the foreign direct investment in Bulgaria (in particular in real estate and project development) are a concern in this context.

In Romania, the foreign direct investments increased with 60% during the first eight months of 2008 compared to 2007. The investment are covering 65% of the deficit on the current account. For 2008, the Romanian minister of finance expects EUR 10 billion of foreign direct investments.

Are foreign Investments, such as green fields. Influenced by the current credit crisis ?
The answer is twofold. At the one hand, it will be more difficult for companies to finance investments. this can result in less investments. The shortage in liquidity and decreasing demand or products can cause companies to postpone or cancel investments. At the other hand, the current satiation forces companies to cut costs. This can cause many Western companies to outsource activities to low wage economies, such as Romania and Bulgaria.

Are Romania and Bulgaria in need of support of the International Monetary Fund ?
The International Monetary Fund (IMF) denies that there is need for supporting Romania and Bulgaria financially. Recently, problems emerged in Hungary, and rumours were spread that both Romania and Bulgaria needed financial support from the IMF. Until this moment, the IMF, Romania and Bulgaria are denying these rumours. The IMF reprimanded the Romanian government for raising the salaries of teachers with 50%. The IMF stated that Romania should adjust its spending to the current state of the economy. Romania already adjusted the raise to 10%.

The Bulgarian minister of finance organised a meeting with IMF officials at the beginning of November. The conversations were part if the periodic consults regarding general policy and the coordination of projections and have no relation with a possible financial support for Bulgaria. Bulgaria has sufficient fiscal reserves that are even larger than the national debt. The country is not planning to ask the IMF for credit.

What are the most important development on the stock markets of both countries ?
It is clear that the stock markets of both countries have suffered large losses which were caused by the distress on financial markets. Emerging markets, such as Romania and Bulgaria, are exceptional vulnerable during a crisis. Because of the perceived risk, international investors sold large proportions of their portfolios in emerging markets. The perceived risk for Romania and Bulgaria is even higher because these countries have issues on a macro economical level (deficit on the trade balance and the Romanian fiscal policy).

The high perceived risk in both countries has caused investors to sell positions aggressively. Shares were sold for bottom prices. This resulted in falling stock markets prices of, sometimes, more than 10% per day. The stock markets have a limited liquidity, especially for small- and midcaps. The limited liquidity caused an even larger fall in prices. RBF has invested a large proportion of its funds in this segment.

What are the current valuations of Romanian and Bulgarian companies ?
In spite of the large decrease of stock prices, the profits of individual companies are developing in a very positive way. The valuation are at the same level as 5 or 6 years ago, while the economy has grown with 5% per year since that time. From this point of view, especially Romania can be seen as one of the cheapest stock markets in the world. price/earnings (p/e) ratios vary from 3 to 5. The discounts are caused by panic sellers on these stock markets. In Bulgaria, p/e ratios vary from 5 to 8.


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(Source site MEI - 18/11/08)