Often neglected by international investors, Romania is a country with almost 20 million people that enjoys very high growth rates and offers an attractive tax regime. For those interested in investing passively in Romania, we analyze its three most important stock market indices.
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Introduction
With a population of about 20 million people, Romania is one of the newest members of the European Union, having joined the organization in 2007.
Although it is part of the Eastern bloc of countries that abandoned communism just over three decades ago, Romania is considered one of its poorest members, together with Bulgaria and Serbia. This is in contrast with more prosperous countries in the bloc such as the Czech Republic, Poland or Hungary.
Nevertheless, Romania’s economy has grown dramatically since the early 1990s. Living standards have improved materially and a significant amount of foreign capital has entered the country.
As a matter of fact, Romania has one of the most attractive tax regimes on the European continent. For this reason, nowadays it is able to attract many digital nomads in search of an attractive lifestyle and moderate taxation.
At the same time, structural reforms have been carried out with the aim of developing the country’s infrastructure and strengthening the rule of law. This has been done to boost economic growth.
Romania has its own currency, the Romanian leu, whose ISO code is RON. The leu is a fairly stable currency. Romania has a favourable macroeconomic situation, with very moderate public debt. This is because the country does not have the backing of any strong central bank such as the European Central Bank, and cannot afford to run large deficits.
The country’s main stock exchange is the Bucharest Stock Exchange, originally founded in 1882. After the fall of communism in 1991, the exchange resumed its trading activity in 1995. Today, it is a publicly-listed company in Romania.
Romania is a country that receives little attention from international investors or the financial press. But it can be a good alternative to diversify the risk of our investment portfolio. In the next few sections, we will analyze the three most important stock market indices for those interested in investing passively in Romania.
BET
The BET, also known as BET-20, is the main stock market index of the Bucharest Stock Exchange. In fact, BET stands for Bucharest Exchange Trading. The index is calculated and published by the exchange itself.
Although the main version of the index is published in local currency, we can also find versions in euros and US dollars, which can help analyze the historical performance of the Romanian stock market for European and international investors.
The BET was introduced in 1997 with an initial value of 1000 points. According to its methodology, it can include between 10 and 20 stocks, although there are usually 20 of them. The exact number of stocks is determined by how many companies meet the liquidity, size and qualitative criteria set by the committee responsible for index construction.
The index is updated every three months with the aim of keeping it relevant and up to date. Stocks are weighted according to their free float-adjusted market capitalization, although a cap of 20% is imposed at the time of index rebalancing.
Two of the most important companies within the BET are Banca Transilvania and OMV Petron, an oil and natural gas producer.
Those interested in more information about the BET, as well as the BETPlus, the index we will analyze next, can visit the website of the Bucharest Stock Exchange.
BETPlus
The BETPlus, another index calculated by the Bucharest Stock Exchange, was introduced in 2014 with the goal of giving some coverage to smaller Romanian companies. It started trading at 1000 points.
With lower liquidity and size criteria than the BET, the BETPlus does not have a set maximum number of stocks. So we can find about 40 companies within the index.
However, because stocks are also weighted based on their free float-adjusted market capitalization, the BETPlus is dominated by the very same companies that dominate the BET. Hence, the correlation between both indices is extremely high. It should be noted that the cap of 20% for any individual stock also applies to the BETPlus.
MSCI Romania
Finally, the MSCI Romania is a more international alternative for those interested in Romanian stock market indices. This index is published by the US company MSCI.
Within it, we will find all Romanian companies that are part of the global MSCI Emerging Markets index.
Due to the low number of corporations that meet the criteria to be part of the index, the MSCI Romania is a highly concentrated index in which we will only find 4 or 5 stocks. In addition to that, because no cap is applied to the weight any individual company can have within the index, its movements are highly influenced by its largest stocks.
Interestingly, we can find the Romanian subsidiary of the French investment bank Société Generale in the MSCI Romania. For more details about this index, please visit MSCI´s website.
I hope you found this article about Romanian stock market indices useful. If you also want to learn about the indices in another Eastern European country, check out the following link:
Top 4 Stock Market Indices in Poland
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