Monthly Market Report
The gross domestic product in Romania increased by 5.3% in the fourth quarter of 2020 compared to the previous quarter, but compared to the same quarter of the previous year, it registered a decrease of 1.7%.
The annual rate of CPI inflation stood at 2.99% in January 2021 in Romania, a higher value compared to that recorded in December (2.06%). FSA No 2/02.25.2021 Seasonally adjusted unemployment rate in Romania stood at 4.9% in December 2020, down 0.2 pp from the previous month (5.1%).
The industrial production index reverted to a low volatility regime as Romanian economy rebounded Page 1 / 26 sharply after two quarters of negative growth.
World Macroeconomic Outlook
According to data published by Eurostat, in the fourth quarter of 2020, the seasonally adjusted GDP decreased by 0.6% in the euro area and by 0.4% in the EU compared to the previous quarter, as a result of containment measures imposed amid the outbreak of the second wave of infections. These developments took place after the euro area and EU economies recorded the largest contractions in the second quarter of 2020 (-11.7% in the euro area and -11.4% in the EU), followed by robust economic recovery in the third quarter of 2020 (+12.4% in the euro area and +11.5% in the EU). Compared to the same period of the previous year, seasonally adjusted GDP fell by 5.0% in the euro area and by 4.8% in the EU in the fourth quarter of 2020. Romania’s GDP increased by 5.3% in the fourth quarter of 2020 compared to the previous quarter, but compared to the same quarter of the previous year, it decreased by 1.7%. The National Commission for Strategy and Prognosis revised down the economic growth forecast for 2020, to -4.4% (from -4.2% according to the preliminary autumn forecast of NCSP), amid declining activity in industry (-8,7%), agriculture (-21.9%) and services (-2.3%) compared to 2019. According to the NCSP forecast, construction will have a positive contribution to GDP in 2020, with an estimated growth of 10.6 %. For the next year, NCSP estimates a recovery of the Romanian economy, with an advance of 4.3%. GDP development in 2019-2020 Q2 European Commission IMF Country Q1 2019 Q2 2019 Q3 2019 Q4 2019 2019 Q1 2020 Q3 2020 Q4 2020 2020 2020f 2021f 2020f 2021f Euro area 1.5 1.3 1.4 1.0 1.3 -3.2 -14.7 -4.3 -5.0 -6.8 3.8 -7.2 4.2 Germany 1.1 0.1 0.8 0.4 0.6 -2.2 -11.3 -4.0 -3.9 -5.0 3.2 -5.4 3.5 Spain 2.2 2.1 1.8 1.7 2.0 -4.2 -21.6 -9.0 -9.1 -11.0 5.6 -11.1 5.9 France 1.8 1.8 1.6 0.8 1.5 -5.7 -18.8 -3.9 -5.0 -8.3 5.5 -9.0 5.5 Italy 0.3 0.4 0.5 0.1 0.3 -5.6 -18.1 -5.1 -6.6 -8.8 3.4 -9.2 3.0 Bulgaria 4.2 3.8 3.3 3.1 3.7 2.3 -8.6 -5.2 -3.8 -4.9 2.7 -4.0 4.1 Croatia 4.0 2.5 2.7 2.5 2.9 0.3 -15.5 -10.0 - -8.9 5.3 -9.0 6.0 Hungary 5.1 4.7 4.4 4.0 4.6 1.9 -13.7 -4.8 -4.3 -5.3 4.0 -6.1 3.9 Poland 5.3 4.7 4.4 3.9 4.5 1.9 -8.0 -1.8 -2.8 -2.8 3.1 -3.6 4.6 Romania 5.4 3.6 3.4 4.4 4.1 2.6 -10.2 -5.6 -1.7 -5.0 3.8 -4.8 4.6
Source: Eurostat, percentage change compared with the same quarter of the previous year - seasonally adjusted data, European Commission, Winter 2021 Economic Forecast, World Economic Outlook – January 2021, IMF Turnover from market services provided mainly to enterprises increased in December 2020 in Romania compared to the same period of the previous year by 11.7% as gross series, and by 9.4% as seasonally adjusted series. The highest increase was registered in the activities of information services and information technology (+22.0%) followed by the transport activities (+15.2%), the activities in film production, video, television programs, broadcasting and transmission of programs (+12.0%), the communications activities (+10.7%) and other services provided mainly to enterprises (+6.5%). The annual rate of CPI inflation stood at 2.99% in January 2021 in Romania, a higher value compared to December 2020 (+2.06%). The increases in prices of non-food goods (3.25%) and food goods (2.88%) had the most significant contribution to the annual inflation rate. In Romania, the industrial production increased by 2.6% as gross series and by 1.6% as seasonally adjusted series in December 2020 compared to December 2019. The most significant increases were recorded by the manufacturing industry (+2.8%) and the production and supply of electricity and heat, gas, hot water and air conditioning (+3.8%). The most affected industrial sector was the extractive industry (-3.8%: gross series). The volume of construction works increased in Romania by 12.6% as gross series, respectively by 16.5% as seasonally adjusted series in December 2020 compared to the similar period of the previous year. The most significant increases were registered by the volume of capital repair works (+24.2%), followed by new construction works (+19.0%), while the maintenance and current repairs decreased by 8.6%. By construction objects, the volume of engineering construction works increased by +22.5% and the residential buildings recorded an increase of +14.5% as gross series, while non-residential buildings decreased by 0.7%.
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The size of the banking vs. non-banking financial sector
The assets of the Romanian banking and non-banking financial markets (% of GDP) 2014 2015 2016 2017 2018 2019 Q1 2020 Q2 2020 Q3-2020 Banking financial system (% GDP) 60.53% 58.59% 56.18% 60.24% 51.09% 50.34% 52.04% 53.37% 55.20% Non-banking financial system (% GDP) 11.69% 11.74% 12.21% 13.75% 11.53% 12.57% 11.39% 12.57% 13.00% Collective Investment Undertakings 5.89% 5.80% 5.43% 5.70% 4.15% 4.39% 3.48% 3.85% 3.78% Private Pension Funds 3.01% 3.64% 4.32% 5.44% 5.21% 6.09% 5.83% 6.53% 6.94% Insurance Companies 2.79% 2.30% 2.47% 2.61% 2.16% 2.09% 2.07% 2.19% 2.28%
Evolution of nonbanking system's assets (% of GDP) 8.00% 6.94% 7.00% 6.53% 6.09% 5.89% 5.80% 5.70% 5.83% 6.00% 5.43% 5.44% 5.21%
5.00% 4.39% 4.32% 4.15% 3.85% 3.78% 4.00% 3.64% 3.48% 3.01% 3.00% 2.79% 2.47% 2.61% 2.30% 2.19% 2.28% 2.16% 2.09% 2.07% 2.00%
1.00%
0.00% 2014 2015 2016 2017 2018 2019 T1 - 2020 T2-2020 T3-2020
Collective Investment Undertakings Private Pension Funds Insurance Companies
Source: NBR, NIS,FSA
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Current trends and headlights on Romanian markets
Evolution of local stock indices 16.00% Romanian stock indices evolution in 2021 (30.12.2020 = 100) 14.00% 12.00% Date BET BET-BK BET-FI BET-NG BET-TR 10.00% 2/18/2021 6.23% 7.15% 6.78% 11.58% 6.24% 8.00% 6.00% 4.00% Date BET-XT BET-XT-TR BETPlus ROTX 2.00% 2/18/2021 6.28% 6.30% 6.30% 5.75% 0.00% -2.00%
1/5/2021 1/7/2021 1/9/2021 2/2/2021 2/4/2021 2/6/2021 2/8/2021
1/29/2021 2/16/2021 1/11/2021 1/13/2021 1/15/2021 1/17/2021 1/19/2021 1/21/2021 1/23/2021 1/25/2021 1/27/2021 1/31/2021 2/10/2021 2/12/2021 2/14/2021 2/18/2021 BET BET-BK BET-FI BET-NG BET-TR BET-XT BET-XT-TR BETPlus ROTX Source: BSE; FSA calculations Equities traded value on BSE (EUR) 180,000,000 160,000,000 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000
0
1/5/2020 2/4/2020 3/5/2020 4/4/2020 5/4/2020 6/3/2020 7/3/2020 8/2/2020 9/1/2020 1/9/2021 2/8/2021
1/15/2020 6/23/2020 1/25/2020 2/14/2020 2/24/2020 3/15/2020 3/25/2020 4/14/2020 4/24/2020 5/14/2020 5/24/2020 6/13/2020 7/13/2020 7/23/2020 8/12/2020 8/22/2020 9/11/2020 9/21/2020 10/1/2020 1/19/2021 1/29/2021 2/18/2021
11/30/2020 10/11/2020 10/21/2020 10/31/2020 11/10/2020 11/20/2020 12/10/2020 12/20/2020 12/30/2020
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Macroeconomic background in Romania: development of the real sector, inflation and labor market
Evolution of government debt (% of GDP) The seasonally adjusted unemployment rate in the Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 euro area was 8.3%, while the EU unemployment rate was 7.5% in December 2020, values similar to those Italy 134.4 136.0 137.5 136.8 134.7 137.6 149.3 154.2 recorded in the previous month. France 98.1 99.3 99.2 100.1 98.1 101.3 114.1 116.5 The seasonally adjusted unemployment rate in Spain 97.4 98.4 98.4 97.5 95.5 99.0 110.2 114.1 Romania was 4.9% in December 2020, down 0.2 pp Euro zone 85.8 86.3 86.2 85.8 84.0 86.2 95 97.3 from the previous month (5.1%), according to data EU 79.5 79.9 79.7 79.2 77.6 79.4 87.7 89.8 published by NIS. Hungary 69.1 68.4 67.2 67.2 65.5 65.9 70.5 74.3 At local level, the trend is maintained, according to Germany 61.8 61.6 61.1 61.0 59.6 61 67.4 70 which the unemployment rate among men (5.1%) is Poland 48.8 48.9 47.7 47 45.7 47.6 54.8 56.7 higher than the unemployment rate for women Romania 34.7 33.8 33.9 35.2 35.3 37.4 40.8 43.1 (4.6%). Bulgaria 22.3 20.9 20.3 20.5 20.2 20.1 21.3 25.3
Source: Eurostat Unemployment rate (December 2020) The government debt-to-GDP ratio in the euro area is 97.3% in the third quarter of 2020, Czechia increasing compared to the level recorded in the fourth quarter of 2019 (84.0%). There is Poland significant heterogeneity in debt level, the share of public debt in GDP ranging from 18.5% Germany (Estonia) to 199.9% (Greece). Romania 4.9
Romania is among the EU member states with a low level of indebtedness (43.1%), below Bulgaria the indebtedness of the EU member states of 89.8% of GDP. EU 7.5
According to the NBR, the direct investments of non-residents in Romania (FDI) recorded a France value of EUR 1.9 billion in January-December 2020 (compared with EUR 4.8 billion in the Euro Zone 8.3 same period of the previous year). Italy On the other hand, the current account of the balance of payments registered a deficit of Spain EUR 10.98 billion in 2020, compared to EUR 10.48 billion in 2019. 0.0 5.0 10.0 15.0 20.0 The evolution of the current account was accompanied by an increase in total external debt by EUR 15.67 billion in January - December 2020 to EUR 125 billion. Source: Eurostat
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Macroeconomic background in Romania: development of the real sector, inflation and labor market
Main sector indicators (annual rate of change, %) Inflation, monthly data (annual rate of change) 60.00 7.00 50.00 40.00 6.00 30.00 20.00 5.00 10.00 4.00 0.00 -10.00 3.00 -20.00 -30.00 2.00 -40.00 1.00 -50.00 0.00
Industrial production Construction works CPI inflation Food goods Non-food goods Services Retail trade Services for enterprises Source: National Institute of Statistics; FSA calculations Development of current account by main components (million euro) The economic sentiment index in EU
2,000 3.0 130. 120. 1,000 1.0 110. 0 (1.0) 100. -1,000 90. (3.0) 80. -2,000 (5.0) 70. -3,000 60. -4,000 (7.0) 50. 40. -5,000 (9.0)
Q2-17Q3-17Q4-17Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19Q4-19Q1-20Q2-20Q3-20
Jul-19 Jul-20
Jan-19 Jan-20 Jan-21
Jun-19 Jun-20
Oct-19 Oct-20
Apr-19 Apr-20
Feb-19 Sep-19 Feb-20 Sep-20
Dec-19 Dec-20
Aug-19 Aug-20
Nov-19 Nov-20
Mar-19 Mar-20
May-19 May-20
Goods and services Primary income Secondary income Current Account (% Q-GDP) EU Romania Poland Hungary Germany
Source: NBR, FSA calculations Source: Eurostat Page 6 / 26
Macroeconomic risk in Romania: external position and market perception of sovereign risk
Evolution of Credit Default Swaps quotations (5Y, USD) Government bond yields (5Y, LC) 200 180 160 140 120 100 80 60 40 20 0 2/23/2019 8/23/2019 2/23/2020 8/23/2020 2/23/2021
Romania Poland Czech Republic Bulgaria Hungary
Source: Datastream Romania 5 - year bond yields decreased by 11% in January 2021 as compared with the previous month, reaching an average value of 2.51%, while Bulgaria 5 – year bond yields increased to an average value of 0.14%. Germany 5 – year bond yields remained negative, at very low levels (average value of -0.73% in January 2021). Government bond yields spread of Romania (10Y, LC) 4.00 3.50 3.00 2.50 Romania CDS quotations increased by 2.3% in January 2021 compared 2.00 with the previous month, reaching an average value of 119.81 bp. 1.50 At the end of December 2020, there is a decrease in the spread 1.00 0.50 between Romanian and German government bonds (10Y), but it begins 0.00 to be on an upward trend since the month of January 2021. pp
Romania - Germany Poland - Germany Source: Datastream, FSA’s calculations
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Market risk: evolution of local and international stock indices at the end of January 2021
International and local stock indices yields
International indices 1 M 3 M 6 M The european indices have recorded negative developments (1M). EA (EUROSTOXX) -1.45% 17.55% 12.36% The most significant decrease was recorded by ASE index FR (CAC 40) -2.74% 17.52% 12.87% (GR: -7.36%), followed by ISEQ index (IE: - 4.46%). DE (DAX) -2.08% 16.24% 9.09% IT (FTSE MIB) -2.97% 20.23% 12.99% The main American and Asian indices showed mixed evolutions. GR (ASE) -7.36% 31.60% 21.35% Therefore, the most significant increase was registered by the IE (ISEQ) -4.46% 9.64% 15.54% N225 index (JPN: + 0.80%), while the most significant decrease was ES (IBEX) -3.92% 20.23% 12.80% registered by NIFTY 50 index (IN: -2.48%) UK (FTSE 100) -0.82% 14.89% 8.64% US (DJIA) -2.04% 13.14% 13.45%
IN (NIFTY 50) -2.48% 17.11% 23.13% SHG (SSEA) 0.29% 8.03% 5.23% JPN (N225) 0.80% 20.40% 27.42%
BSE indices 1 M 3 M 6 M BET 5.11% 21.10% 23.02% BET-BK 4.81% 20.76% 18.97% The BSE stock indices have recorded positive developments (1M). BET-FI 4.76% 15.48% 7.08% The best performer was BET-NG index which increased by 9.27% in BET-NG 9.27% 20.52% 19.44% January, while the least performing was ROTX index which BET-TR 5.10% 21.26% 24.22% increased by 4.42%. BET-XT 5.22% 20.37% 19.84% BET-XT-TR 5.22% 20.50% 21.01% BETPlus 5.05% 20.75% 22.51% ROTX 4.42% 25.48% 24.59%
Source: Datastream, FSA’s calculations Note: 1M=01/29/2021 vs. 12/31/2020; 3M=01/29/2021 vs. 10/30/2020; 6M=01/29/2021 vs. 07/31/2020
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Market risk: volatility of Romanian government bond yields and the EURRON currency rate
Term structure of EUR/RON forward rate EUR/RON Exchange Rate vs Volatility 5.05
4.88 Exchange rate EUR/RON (left axis) Volatility of EUR/RON 4.00% 5 3.50% 4.95 3.00% 4.9 2.50% 4.85 4.85 2.00% 4.8 1.50% 4.75 1.00% 4.7 0.50% 4.65 4.82 0.00% 1 week 1 month 2 months 3 months 6 months 9 months 12 months 2/16/2020 6/16/2020 10/16/2020 1/29/2021 12/31/2020 12/31/2019 Source: Refinitiv, FSA’s calculations 140 Real effective exchange rate (REER; 2014=100) Appreciation (>100) The EUR / RON exchange rate remained in the range of 4.83-4.84 between May and 130 July 2020, while volatility fell below 2%. We forecast that the depreciation trend 120 will continue to remain low, as the Romanian Central Bank lowered the monetary interest rate to 1.25% in January 2021 to fight the impending recession and 110 managed interbank liquidity, to avoid any speculative attack on the currency. The 100 exchange rate depreciated rapidly in September 2020 due to the increase in the
90 budget deficit to 11%.The exchange rate has been kept stable since the beginning of the year by the Central Bank around 4.87 Eur/Ron. 80 The term structure of the forward rate for the EURRON exchange rate with maturities between one week and twelve months shows the market expectations. There are expectations of EURRON depreciation for maturities between 3 and 12 Polonia China Romania Zona euro USA months with respect to the previous month (RON appreciation). Source: BIS, FSA’s calculations
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Market risk: financial markets fragility
Contagion risk
90 The Spillover index measures the marginal contribution of the external capital markets on the Romanian stock exchange. The 85 Romanian capital market is sensitive to the same regional risk factors that influence the Austrian, Polish, Hungarian, and
80 Bulgarian stock market returns. There is a strong link between the spillover effect and the companies’ returns, since the increase in the spillover tends to diminish the returns of the companies listed 75 on the Bucharest Stock Exchange. The contagion has increased in February and March due to the outbreak of the COVID-19 pandemic due to the uncertainty of the 70 financial markets. In that period, the speed of the contagion was the greatest in the last 10 years, indicating how fast fear and
65 uncertainty have impaired the financial stability of international markets. The contagion has reached its peak point in March and then it has 60 begun to decrease in April and May. Between June-October, the spillover has exhibited a downward trend with a mean-reverting Spillover index Trend Spillover index (Hodrick-Prescott filter) behavior. Starting January 2021 the spillover trended downward 55 10/16/2019 1/16/2020 4/16/2020 7/16/2020 10/16/2020 mainly due to the vaccination program across European countries.
Source: Refinitiv, FSA’s calculations
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Liquidity risk on Romanian Stock Exchanges
The BSE Trading Activity (all the Segments) during January 2021 Top of intermediaries during January 2021
% from Value Traded Value Week/month No. of transactions Volume Total Value EUR % Rank Intermediary name EUR (month (month Total 04-08 January 2021 19,030 545,200,966 63,907,502 36.79% level) level) Total 11-15 January 2021 22,303 136,366,531 36,487,913 21.00% 1 BRD Groupe Societe Generale 519,891,775 31.52 Total 18-22 January 2021 20,365 153,155,286 40,097,137 23.08% Total 25-29 January 2021 20,399 97,007,616 33,226,125 19.13% 2 BT CAPITAL PARTNERS 457,210,208 27.72 Total January 2021 82,097 931,730,399 173,718,678 100.00% 3 BANCA COMERCIALA ROMANA 250,048,349 15.16 Source: BNR, BSE data, FSA’s calculations; monthly average exchange rate for January 2021 = 4.8728 LEI/EUR The BSE’s Most Traded Companies during January 2021 (Only the Main Segment) 4 SWISS CAPITAL S.A. 181,208,968 10.99 Symbol Value (EUR) % Value (EUR) % Value (EUR) % 5 TRADEVILLE 76,739,514 4.65 CEON 154,779 0.12% 25,112,987 72.18% 25,267,766 15.75% 6 SSIF BRK FINANCIAL GROUP S.A. 37,484,185 2.27 TLV 23,469,944 18.88% 1,321,622 3.80% 24,791,567 15.46% WOOD & COMPANY FINANCIAL SERVICES, a.s. FP 18,714,863 15.06% 0 0.00% 18,714,863 11.67% 7 30,324,895 1.84 SNP 12,533,022 10.08% 812,674 2.34% 13,345,696 8.32% PRAGA TGN 7,376,294 5.93% 2,670,274 7.67% 10,046,568 6.26% 8 GOLDRING 18,377,740 1.11 BRD 8,582,722 6.90% 779,839 2.24% 9,362,561 5.84% 9 RAIFFEISEN CENTROBANK AG 15,272,617 0.93 SNN 7,778,451 6.26% 78,349 0.23% 7,856,801 4.90% SNG 7,478,587 6.02% 0 0.00% 7,478,587 4.66% 10 Alpha Bank Romania SA 13,135,530 0.8 SIF2 3,038,455 2.44% 2,398,259 6.89% 5,436,714 3.39% M 4,405,842 3.54% 143,365 0.41% 4,549,207 2.84% 11 IFB FINWEST 13,083,920 0.79 EL 3,576,502 2.88% 0 0.00% 3,576,502 2.23% 12 PRIME TRANSACTION 11,577,841 0.7 TRP 3,047,612 2.45% 0 0.00% 3,047,612 1.90% EBS 3,024,135 2.43% 0 0.00% 3,024,135 1.89% 13 ESTINVEST 6,994,884 0.42 TEL 2,141,405 1.72% 0 0.00% 2,141,405 1.34% 14 CONCORDE SECURITIES LTD 5,113,492 0.31 SIF5 1,531,768 1.23% 507,684 1.46% 2,039,451 1.27% Top 15 Total 87.70% 15 ERSTE GROUP BANK AG 4,823,364 0.29
Top 15 Total 99.50
Source: BNR, BSE data, FSA’s calculations; monthly average exchange rate for January 2021 = 4.8728 LEI/EUR 34,000 Market Capitalization 33,000 32,000
31,000 Millions Millions EUR
30,000
1/4/2021 1/5/2021 1/6/2021 1/7/2021 1/8/2021 1/9/2021
1/11/2021 1/12/2021 1/13/2021 1/14/2021 1/15/2021 1/16/2021 1/17/2021 1/18/2021 1/19/2021 1/20/2021 1/21/2021 1/22/2021 1/23/2021 1/24/2021 1/25/2021 1/26/2021 1/27/2021 1/28/2021 1/29/2021 1/10/2021 Source: BSE
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MSCI: Quantitative Indicators for Emerging Market Status
EM MSCI 1st Criterion: Market cap > 1,830 bn. USD
10 USD
5 Billions Billions 0 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 BRD EL SNG SNP TLV MSCI Criterion
3.0 EM MSCI 2nd Criterion: Free float cap > 0.915 bn. USD USD 2.0
Billions Billions 1.0
0.0 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 BRD EL SNG SNP TLV MSCI Criterion
40% EM MSCI 3rd Criterion: ATVR > 15%
20%
0% Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 BRD EL SNG SNP TLV MSCI Criterion
Source: FSA’s calculations, January 2021
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MSCI: Quantitative Indicators for Emerging Market Status
BRD - Indicators' variation to MSCI criterion EL - Indicators' variation to MSCI criterion 1.50 25% 0.00 0%
20% usd usd -0.20 -2% 1.00 15% -0.40 -4%
10% Billions
Billions 0.50 5% -0.60 -6% 0% 0.00 -0.80 -8% -5%
-0.50 -10% -1.00 -10%
Jul-19 Jul-20
Jul-19 Jul-20
Jan-21 Jan-19 Jan-20
Jun-19 Jun-20
Oct-19 Oct-20
Apr-19 Apr-20
Feb-19 Sep-19 Feb-20 Sep-20
Dec-19 Dec-20
Jan-19 Jan-20 Jan-21
Aug-19 Aug-20
Jun-19 Jun-20
Nov-19 Nov-20
Oct-19 Oct-20
Apr-19 Apr-20
Mar-19 Mar-20
Feb-19 Sep-19 Feb-20 Sep-20
Dec-19 Dec-20
May-19 May-20
Aug-19 Aug-20
Nov-19 Nov-20
Mar-19 Mar-20
May-19 May-20
Market Cap USD Free float Cap USD ATVR % Market Cap USD Free float Cap USD ATVR %
SNP - Indicators' variation to MSCI criterion SNG - Indicators' variation to MSCI criterion 2.00 20% 5.00 15% 4.00 usd 10% usd 3.00 1.00 10% 5% 2.00
Billions 0% Billions 0.00 0% 1.00 0.00 -5%
-1.00 -10% -1.00 -10%
Jul-19 Jul-20
Jul-19 Jul-20
Jan-19 Jan-20 Jan-21
Jun-19 Jun-20
Oct-19 Oct-20
Apr-19 Apr-20
Feb-19 Sep-19 Feb-20 Sep-20
Jan-19 Jan-20 Jan-21
Dec-19 Dec-20
Aug-19 Aug-20 Jun-19 Jun-20
Nov-19 Nov-20 Oct-19 Oct-20
Apr-19 Apr-20
Mar-19 Mar-20
Feb-19 Sep-19 Feb-20 Sep-20
Dec-19 Dec-20
Aug-20 Aug-19
May-19 May-20
Nov-19 Nov-20
Mar-19 Mar-20
May-19 May-20 Market Cap USD Free float Cap USD ATVR % Market Cap USD Free float Cap USD ATVR %
Indicators' variation to MSCI criterion (January 2021) TLV - Indicators' variation to MSCI criterion 2.00 20%
usd Company Cap. bln. USD Free float bln. USD ATVR % 10% 1.00 BRD 0.78 (0.13) 7.58% 0% Billions EL (0.70) (0.46) -2.12% 0.00 -10% SNG 1.13 (0.03) 4.10%
SNP 3.78 0.21 2.86%
Jul-19 Jul-20
Jan-19 Jan-20 Jan-21
Jun-19 Jun-20
Oct-19 Oct-20
Apr-20 Apr-19
Feb-19 Sep-19 Feb-20 Sep-20
Dec-19 Dec-20
Aug-19 Aug-20
Nov-19 Nov-20
Mar-20 Mar-19 May-20 May-19 TLV 1.44 1.70 11.02% Market Cap USD Free float Cap USD ATVR % Source: FSA’s calculations, January 2021
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Risk assessment and the benefit of diversification
The degree of over or under-evaluation of Bucharest Stock Exchange compared The average correlation coefficient for the 25 most liquid companies traded on with the region BSE 1.30 0.90 1.20 0.80 1.10 0.70 1.00 0.60 0.90
0.80 0.50
0.70 0.40 relative P/E relative 0.60 0.30 0.50 0.20 0.40 0.10
0.00
6/30/2020 1/30/2020 2/29/2020 3/31/2020 4/30/2020 5/31/2020 7/31/2020 8/31/2020 9/30/2020 1/31/2021
12/30/2019 10/31/2020 11/30/2020 12/31/2020
Romania/Hungary Romania/Czech Romania/Poland perc.75% perc.25% Average correlation Romania/Germany Romania/Austria Source: Datastream, FSA’s calculations Source: Bloomberg, ASF P/E forward ratio is calculated by dividing the share price to the net earnings per share and indicates how much investors pay for earnings forecasted for next year. The risk of re-evaluation is calculated by dividing the P/E forward At the end of July, the correlations between the daily yields of the 25 most ratios for different markets and indicates how much investors pay for the liquid companies from Bucharest Stock Exchange the decreased and anticipated next year in comparison with another market. returned to the level recorded at the beginning of 2020. In January-February In January 2021, the ratio was lower than 1 (except for Romania/Hungary) 2021 is marked by a slightly increase in the correlations between the shares. thus indicating that the Romanian capital market was more attractive in comparison with most of the analyzed countries.
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Risk assessment and the benefit of diversification
Adverse economic conditions can trigger steep increases in uncertainty. Uncertainty is a response to fluctuations in economic activity. As the European business cycle was strongly correlated during the 2020 pandemic, by combining all the common shocks in asset prices, it is possible to capture the effect of uncertainty on stock markets. The CISS indicator is a composite indicator calculated by the European Central Bank and measures systemic stress for European financial markets. In 2020, European stock market returns declined due to the uncertainty generated by the COVID pandemic. The Romanian capital market declined to the shocks of uncertainty as well as other European capital markets. By differentiating between structural (unobserved) supply and demand factors, it can be seen that the effect of a supply shock has led to a decrease in Romanian stock market liquidity. The uncertainty shock proxied by the CISS indicator has the effect of a decrease of 8% on the Romanian stock markets. The shock dissipated in the next 3 months. The estimates obtained based on the model coincide with the decline of the Romanian stock exchange during the first pandemic wave. The industrial production index fell sharply in April and May and rebounded in June and July. The chart indicates that the expected duration of the likelihood of a high volatility regime is low, lasting about 2 months1. The industrial production index reverted to a low volatility regime as Romanian economy rebounded sharply after two quarters of negative growth. Supply shock on market liquidity (SVAR model with Blanchard-Quah restriction on short– term demand) Industrial Production Index (Jan.2005-Dec.2020) Smoothed probabilities for the two regimes
1.0
0.8
0.6
0.4
0.2
0.0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Economic instability(high volatility regime) Economic stability (low volatility regime)
Source: FSA own calculations Source: INSSE, FSA own calculation
1 For the monthly Industrial Production Index we have estimated a Hamilton-type Markov switching regression model with intercept and first AR lag changing between regimes. Page 15 / 26
Concentration risk
Concentration risk of non-life insurance undertakings Concentration risk of life insurance undertakings (by value of GWP at 30 September 2020) (by value of GWP at 30 September 2020) 100.00% 0.16 100.00% 0.2500 0.1393 90.00% 0.1342 90.00% 0.14 0.2035 80.00% 80.00% 0.1920 0.2000 0.12 70.00% 70.00% 60.00% 0.10 60.00% 0.1500 50.00% 0.08 50.00%
40.00% 0.06 40.00% 0.1000 30.00% 30.00% 0.04 20.00% 20.00% 0.0500 10.00% 0.02 10.00% 0.00% 0.00 0.00% 0.0000 9/30/2019 9/30/2020 9/30/2019 9/30/2020 CR3 CR5 CR7 HHI CR3 CR5 CR7 HHI Concentration risk of investment funds in Romania Concentration risk of intermediaries on the BSE (by value of transactions (by net assets – 30 September 2020) during January 2021 – Main segment & MTS, all spot instruments) 100.00% 0.1400
100.00% 0.25 90.00% 0.1200 90.00% 0.2321 0.1176 80.00% 80.00% 0.2 70.00% 0.1000 70.00% 60.00% 0.1348 0.15 60.00% 0.0800 50.00% 50.00% 40.00% 0.1 0.0600 40.00% 30.00% 20.00% 0.05 30.00% 0.0400
10.00%
75.90% 90.65% 97.94% 99.05% 73.21% 50.39% 20.00% 0.00% 0 0.0200
Open-end funds Closed-end funds 10.00%
48.69% 69.78% 82.58% CR3 CR5 CR7 HHI 0.00% 0.0000 CR3 CR5 CR7 HHI Source: FSA Source: FSA
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Concentration risk
Concentration risk of depositaries of private pension funds and investment funds The degree of concentration of insurance companies in the MTPL market (by (by total assets at 9/30/2020) gross written premiums at 09/30/2020) 100% 0.8000 0.3000 0.2968 100.00% 90% 0.7012 0.7000 0.2950 90.00% 80% 0.2900 80.00% 0.6104 0.6000 70% 0.2850 70.00% 60% 0.4987 0.5000 0.2800 60.00% 50% 0.4000 0.2750 50.00% 40% 0.3000 0.2683 0.2700 40.00% 30% 0.2000 0.2650 30.00% 20% 0.2600 20.00% 10% 0.1000
0% - 0.2550 10.00%
78.54% 90.85% 96.66% 81.18% 91.40% 97.76% Private pension funds Investment funds Total (private pension funds 0.2500 0.00% and investment funds) September, 2019 September, 2020 BRD - GROUPE SOCIETE GENERALE SA BANCA COMERCIALĂ ROMÂNĂ SA UNICREDIT BANK SA HHI CR3 CR5 CR7 HHI
Concentration risk of private pension funds (by total assets at 1/31/2021) According to the main indicators used by the Competition Council, the 100.00% 0.2500 0.2443 concentration risk in the non-life insurance market is medium to high level, 80.00% 0.2400 while the life insurance market concentration degree is still high. 0.2300 The situation is similar in the case of private pension funds market (Pillar II 60.00% and Pillar III), but explainable by objective reasons related to their 0.2200 40.00% operating mechanism and the current state of the market. 0.2111 0.2100 Also on the capital market, the concentration degree is medium to high for
20.00% 0.2000 OEIFs (although the number of investment funds is high) and for the
70.31% 89.21% 71.88% 87.78% 95.49% 100.00% 0.00% 0.1900 intermediaries on the BSE due to the fact that top market participants sum Pillar II Pillar III up a significant share of the total assets. CR3 CR5 CR7 HHI
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Specific developments in the private pension funds sector: Mandatory pension funds (2nd Pillar)
Total assets (EUR), number of participants and return rates Rate of return for mandatory pension funds Participants Total Assets Rate of return 7.0000% Mandatory pension fund (persons) 31 January 2021 (EUR) January 2021 January 2021 6.0000% ARIPI* 1,419,019,735 791,902 6.51% AZT VIITORUL TAU 3,440,550,945 1,614,087 6.12% 5.0000% BCR 1,094,433,008 694,664 6.55% BRD 623,338,662 478,892 5.40% 4.0000% METROPOLITAN LIFE 2,222,156,419 1,068,376 6.31% NN 5,531,467,700 2,040,973 6.03% 3.0000% VITAL 1,590,861,722 958,037 6.48% Total 15,921,828,191 7,646,931 n/a
2.0000% Evolution of gross contributions New participants (persons) in 2nd Pillar
200 45 1.0000%
180 44 0.0000% 160 43 -1.0000% 140 42
120 41 -2.0000% 100 40 17,509 -3.0000% 80 39 60 38 persons ARIPI 40 37 AZT VIITORUL TAU 20 36 BCR BRD 0 35 METROPOLITAN LIFE
NN
Jul-20
Jan-20 Jan-21
Jun-20
Oct-20
Apr-20
Feb-20 Sep-20
Dec-20
Aug-20
Nov-20 Mar-20 May-20 VITAL Gross contributions (Mil. EUR) Minimal rate of return for high risk private pension funds Average contribution per participant with contributions Minimal rate of return for medium risk mandatory private pension funds (EUR) Weighted average rate of return for mandatory private pension funds Source: FSA
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Specific developments in the private pension funds sector: Mandatory pension funds (2nd Pillar)
Mandatory pension fund’s portfolio at 31 January 2021 (EUR) Assets category Assets value (EUR) % Total assets Government bonds 10,715,750,041 67.30% Equity 3,528,954,065 22.16% Corporate bonds 611,220,657 3.84% Investment funds 477,222,076 3.00% Supranational bonds 306,928,875 1.93% Bank deposits 203,523,816 1.28% Municipal bonds 39,163,362 0.25% Metal funds 22,877,182 0.14% Other assets 16,036,973 0.10% Derivatives 151,144 0.0009%
Country exposure of mandatory pension fund’s assets Currency exposure of mandatory pension fund’s assets
US, 1.45% Other currencies, 0.08% USD, 1.33%
Other countries, Exposure by country RO, 90.07% LU, 1.70% Exposure value (%total assets) RON, 88.49% EUR, 10.10% 6.78%
84% 86% 88% 90% 92% 94% 96% 98% 100% 82% 84% 86% 88% 90% 92% 94% 96% 98% 100%
Source: FSA
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Current evolutions in optional private pension funds (3rd Pillar)
Total assets (EUR), number of participants and return rates Rate of return for voluntary pension funds
Total assets (EUR), Participants (persons) Rate of return 8.00% AZT VIVACE Voluntary pension fund 31 January 2021 January 2021 January 2021
AEGON ESENTIAL 2,010,477 3,857 10.6413% NN ACTIV AZT MODERATO 64,982,672 39,743 9.9824% AZT VIVACE 24,125,338 20,252 10.8402% 6.00% AEGON ESENTIAL BCR PLUS 110,273,236 139,142 9.5434% BRD MEDIO 33,491,760 33,654 8.2828% GENERALI STABIL 6,163,113 5,466 10.4693% AZT MODERATO NN ACTIV 71,229,974 55,148 9.6587% 4.00%
NN OPTIM 263,801,760 200,281 8.6358% BCR PLUS PENSIA MEA 19,759,387 16,636 7.8153% RAIFFEISEN ACUMULARE 23,673,139 14,769 9.8631% BRD MEDIO Total 619,510,855 528,948 n/a 2.00% Evolution of gross contributions New participants in 3rd Pillar NN OPTIM 9,000,000 35.00 7,000
8,000,000 30.00 0.00% 6,000 PENSIA MEA 7,000,000 25.00 6,000,000 5,000 RAIFFEISEN 5,000,000 20.00 ACUMULARE 4,000 -2.00% 4,000,000 15.00 STABIL 3,000 3,000,000 10.00 2,000,000 Weighted rate of 2,000 -4.00% 5.00 return for all high risk 1,000,000 voluntary pension 1,000 funds - 0.00 Minimal rate of return for high risk - voluntary pension -6.00% funds Weighted rate of Gross contributions (EUR) return for all medium
iul.-20 risk voluntary funds
ian.-20 ian.-21
mai-20
nov.-19 nov.-20 mar.-20 Average contribution per participant with contributions (EUR) sept.-20 Source: FSA
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Current evolutions in optional private pension funds (3rd Pillar)
Optional pension fund’s portfolio at 31 January 2021 (EUR)
Assets category Assets value (EUR) % Total assets Government Bonds 393,586,290 65.45% Equity 163,839,934 27.25% Corporate Bonds 18,363,547 3.05% Investment Funds 17,956,064 2.99% Supranational Bonds 10,842,075 1.80% Bank Deposits 7,694,479 1.28% Municipal Bonds 4,918,354 0.82% Metal funds 2,324,730 0.39% Oher assets (14,619) 0.00% Source: FSA Country exposure of optional fund’s assets Currency exposure of optional fund’s assets
Other currencies, 0.13%
NL, 1.10% USD, 0.92%
Other countries, Country exposure RO, 90.88% LU, 2.01% % total assets RON, 87.97% EUR, 10.97% 6.01%
86% 88% 90% 92% 94% 96% 98% 100% 80% 82% 84% 86% 88% 90% 92% 94% 96% 98% 100%
Source: FSA Source: FSA
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Specific developments in the investment funds sector
Evolution of net assets of open-end investment funds Open-end investment funds’ market share by Fund Type and Net Asset (January 2020 – January 2021) (January 2021)
4,800
4,400 Million
4,000 EUR 3,600 3,200 2,800 2,400 2,000 1,600 1,200 800 400 - Bonds and Fixed Income Instruments Other funds Multi-Active Absolute yield Equity
Source: AAF According to data published by AAF, the net assets of open-end investment funds (OeIF) reached a value of EUR 4.19 billion in January 2021, an increase of approximately 4% compared to the previous month. Net assets of open-end bond and fixed income instruments funds and other funds, which account for about 87% of the local OeIF industry, increased compared to the previous month. In January 2021, open-end bond and fixed income instruments funds hold the largest share in total net assets of OeIF (around 68%2), while the "other funds" category has a market share of approximately 19%.
2 There was a change in Open end investment funds’ classification Page 22 / 26
Specific developments in the investment funds sector
Evolution of underwritings and redemptions of Open-end Investment Funds Evolution of net capital flows of Open-end Investment Funds (million EUR) (million EUR)
Jan-21 Jan-21 118 Dec-20 Dec-20 118
Nov-20 Nov-20 12
Oct-20 43 Oct-20
Sep-20 9 Sep-20
Aug-20 -21 Aug-20
Jul-20 -4 Jul-20
Jun-20 66 Jun-20
May-20 -6 May-20
Apr-20 -97 Apr-20
Mar-20 -910 Mar-20
59 Feb-20 Feb-20
81 Jan-20 Jan-20
(1,000.00) (800.00) (600.00) (400.00) (200.00) - 200.00 (1,000) (800) (600) (400) (200) - 200 Million EUR Million EUR
Net sales Redemptions Underwritings Absolute yield Equity Multi-Active Bonds and Fixed Income Instruments Other funds
Source: AAF In January 2021, local open-end investment funds recorded net inflows of EUR 118 million. Net inflows of bonds and fixed income instruments funds amounted to EUR 64 million, while the other funds category recorded net inflows of EUR 35 million.
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Specific developments in the insurance market in Romania
Evolution of the insurance market (30th of September 2020) Gross written premiums (total) MTPL gross written premiums 2 0.70 10 1.72 1.76 0.68 9
1.61 Billions 1.54 1.60 Billions 0.34 0.66 8
0.35 Eur of contracts of
Eur Eur 0.33 0.34 7 0.26 0.64 6
0.62 Millions 1 5 0.60 4 1.42 0.58 1.28 1.26 1.27 1.37 3 0.56 2 0.54 1
0 0.52 - Q3 2016 Q3 2017 Q3 2018 Q3 2019 Q3 2020 Q3 2016 Q3 2017 Q3 2018 Q3 2019 Q3 2020 Non-life insurance Life insurance Gross written premiums for MTPL No. of contracts Source: FSA Share of main insurance classes by GWP Gross claims paid
1.40 Billions 1.20 Eur Eur 1.05 1.04 1.00 0.92 0.17 0.16 0.82 0.80 0.70 0.16 0.17 0.11 0.60 0.88 0.88 0.40 0.76 0.59 0.65 0.20
0.00 Q3 2016 Q3 2017 Q3 2018 Q3 2019 Q3 2020 Non-life insurance Life insurance Source: FSA
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Specific developments in the insurance market in Romania
Total eligible own funds to meet the SCR and total eligible own funds to meet the Ratio of eligible own funds to SCR and Ratio of eligible own funds to MCR MCR 5.00 1 1.25 4.50 1.16 1 1.09 1.12 Billions 1.08 4.00 1.04 1.02 1.05 3.50 Eur 1 3.00 1 2.50 1 2.00 1.50 0 1.00 0 0.50 0.00 - Q3 2017 Q3 2018 Q3 2019 Q3 2020 Q3 2017 Q3 2018 Q3 2019 Q3 2020 Ratio of eligible own funds to SCR Ratio of eligible own funds to MCR Eligible own funds to meet the SCR Eligible own funds to meet the MCR Total assets and total liabilities 6
4.90
Billions 5 4.65
4.29 4.30 Eur 4 3.58 3.73 3.25 3.25 Total assets 3 Total liabilities 2
1
- Q3 2017 Q3 2018 Q3 2019 Q3 2020 Source: FSA, provisional data On 30th of September 2020, eligible own funds to meet the SCR were mainly composed of unrestricted Tier 1 (90%). In terms of own fund items, there were no significant changes in the last five years.
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Press releases and publications of European and international financial institutions in January 2021
EUROPEAN UNION 19 January: EC takes further steps to foster the openness, strength and resilience of Europe`s economic and financial system.
ESMA 6 January: ESMA promotes transparency for TLTRO III transactions.
6 January: ESMA launches a Common supervisory action with NCAs on the supervision of costs and fees of UCITS.
13 January: ESMA reminds firms of the MiFID II rules on reverse solicitation.
EIOPA 26 January: EIOPA publishes the second paper on the methodological principles of insurance stress testing with focus on liquidity.
28 January: EIOPA consults on open insurance.
IOSCO 27 January: IOSCO issues sound practices to assist members in enhancing complaint handling and protect retail investors.
ECB 21 January: ECB decides to reconfirm its very accommodative monetary policy stance.
IMF January: IMF updates World Economic Outlook and Global Financial Stability Report.
WB January: WB publishes Global Economic Prospects.
BIS 14 January: BIS issues an analysis on COVID-19 and cyber risk in the financial sector.
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