What lies behind the recent stock market trend?

The evolution of the stock market over the past two weeks seemed like it defied all the negative news dawning from the Romanian economy. Although the predictions on the local currency and inflation had showed no encouraging signs, BSE attuned to the evolutions of mature markets and responded to different internal factors. Thus, in the past 14 sessions, only five have seen minor declines, in contrast with the relatively recent collapses.

Experts polled by Wall-Street said the turnaround is normal after the sharp dive in the first two months of the year, and that it was tied up to the global context.

“The significant gains in the past few days were tightly connected to external market’s increases, but also to internal factors, such as the changes in FIC’s balances, the waiting for dividend payout for certain companies and the easing of uncertainty on Romania’s economy after the agreement concluded with the international institutions. The bullish came as a normal response, after the sharp declines in January and February”, said Gabriel Necula (photo), broker at Prime Transaction.

Ovidiu Fer from Czech-based Wood&Company said the general sentiment improved after positive news coming (rumors from Citigroup), from the banking sector had piled up.

Alin Cucos, analyst at Estinvest Focsanisaid said the reasons for the bullish to regain its upper hand consisted mostly in technical factors, more like a rampant wave in a bear market.

“These are only market readjustments after two dramatic months of freefall on massive selloffs by investors who still had stakes to liquidate, improvement of the global sentiment and softening of the risk aversion in east European markets. We are dealing with a quasi-bear market rally, more segmented rather than generalized”, said the analyst.

Recent quotas reflect the negative news in economy

Specialists say that behind the recent stock market rally is the negative news that continues to pile up.

“All these macro factors had not flooded the media only but also the indices in the first two months of the year. Therefore, the current information have already been absorbed and anticipated. If the local economic framework and country risk outlook fails to improve, the stock market will not perform in any way, a neutral scenario meaning a first step to consolidation”, said Alin Cucos.

The current level of the stock market (80-90% slumps from all-time highs) has assimilated the bleakest estimations of foreign investors in Romania.

“The macroeconomic news gathering are already reflected by the quotas, and on a short-run, the stock market will head toward the same direction as the external markets”, said Necula.

As Ovidiu Fer noted, the decrease in production was expected and national currency had been quite stable over the past few months, so the negative reports were most likely absorbed by the prices.

“Let’s not forget about the 6-7 months ahead forward looking stock market view. The way it crashed back then when the economy was growing, the same thing can occur now, when the economy gets weaker. Mainly I think we’re dealing with a tight connection to the external environment with some exceptions (such as the acquisition bid from RRC or FIC’s profits)”, Wood’s analysts added.