The stock market began the week with a heavy adjustment, with the strong sales of shares pushing the market down by 11%. Many shares dropped to lower than they were earlier in the year.
All in all in the first two months the market witnessed sustained growth of approximately 50%, yet four more weeks were enough for the large profits made in January and February to evaporate from investors' accounts.
The value of listed companies fell by approximately one billion euros yesterday, pushing losses on the Bucharest Stock Exchange (BSE) in the last month to 5bn euros. Total market capitalisation amounted to 9.3bn euros yesterday.
Few brokers or investors would have predicted seeing Petrom shares at 3,000 ROL, Petromidia at less than 1,000 ROL and BRD at less than 40,000 ROL.
Petrom finished yesterday's session at 3,060 ROL, after starting the year at 3,300 ROL and peaking at 5,250 ROL last month. Petromidia hit 812 ROL yesterday, down from 940 ROL at the beginning of the year and its all time high of 1,280 ROL.
BRD yesterday dropped to 39,200 ROL from a 60,500 ROL peak last week.
The stock market grew in the first few weeks of this year, prompted by the optimism generated by the reduction of corporate profit tax from 25% to 16%. This alone is reason enough to expect corporate profits to go up by 12% on average in 2005. Most stock prices are at a level close to that at the end of last year, when the tax cut was not yet certain.
However, brokers say the heavy fluctuations of shares over recent months were not necessarily the result of the economic information on the market, but were instead caused by the sudden changes in the supply and demand ratio. The stock market went up in January and February simply because new money had come in from both Romanian and foreign investors, while the upward trend in the last few weeks has temporarily postponed buy orders from most investors, which is pushing prices even lower.
"The market is falling simply because no more money is entering the market. Prices shouldn't normally go down any further because many shares have reached attractive prices. If no foreign money enters the market, then the market decline could continue," says Bogdan Trandafir, BCR Securities analyst.
On Friday, when stocks decreased by nearly 3%, European financial markets were still closed due to the Easter holidays, meaning the market saw fewer buy orders from foreign investors than usual.
The value of transactions on the market yesterday, 6 million euros, was close to that seen last week, showing that sales on the market were no higher than usual, with the drop in quotes caused mainly by the lack of buy orders.
BSE general manager Stere Farmache says it is only natural that the market should witness declines once in a while, as it had followed an upward trend for about a year.
"This is a natural adjustment. The stock exchange is fluctuating and this time the fluctuations are negative. I cannot say the rise in the stocks in the first two months of the year was exaggerated, just as much as I cannot say the decline in the last few days was exaggerated," Stere Farmache told Ziarul Financiar. vlad.nicolaescu@zf.ro
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