Monthly Market Report

Transcription

1 Financial Supervisory Authority Monthly Market Report ASF No. 2 / Local capital market had positive evolutions based on low volatility, in trend with European and international markets. Romanian European economic index increased in January 217. Capital market correlations decreased in 217 for Romania related to Deutschland and UK. Investment funds industry had a 3.8% growth in 216 compared to December 215 (EUR) Romanian capital markets are attractive compared to the region from a valuation perspective Macroeconomic background in Romania Macroeconomic risk in Romania Market risk Contagion risk Liquidity risk Valuation risk Concentration risk Specific developments Press releases and publications

2 Macroeconomic background in Romania: development of the real sector, inflation and labour market Indicators Q4_15 Q1_16 Q2_16 Q3_16 Real economic growth Gross domestic product (billion Lei) Current account balance* Public budget balance (ESA21)* Nonresidents' direct investment* Government debt* External debt* Annual inflation rate (%, end of period) ILO unemployment rate (%) * % GDP (ratio was calculated taking into account GDPs achieved in the last 4 quarters) According to the NIS flash estimates, GDP advanced in the fourth quarter of 216 to 4.7% (year on year), compared with 4.3% in the previous quarter, leading to a yearly average increase of 4.8% for 216, in line with the official forecasts of National Commission for Prognosis (NCP) (4.8%) and European Commission (4.9%). The accelerating of GDP in the latter part of the year is explained by the positive effect of industry and services, which offset the severe downturn in construction works. Nonresidents' direct investments amounted to 4.1 billion euros in 216 (2.4% of GDP), with 17.9% higher than the level of the previous period, and current account deficit (2.4% of GDP) and cash budget deficit (2.4% of GDP) were positioned within sustainable limits. The ILO unemployment rate decreased to 6,% during the period under review, with high values (21%) for persons aged 1524 years (22% of the total of unemployed). The confidence in economy over the short term remains optimistic, the economic sentiment indicator (DG ECFIN) registering an increase of 1.2 points in January, due to improving perception on industry (+.2 points) and services (+2.3 points). On the medium term, the winter forecast of NCP anticipates an advance of the economy with 5.2% in 217 and 5.5% in 218, compared to the EC forecast of 4.4% and 3.7% for the same period. Also, EC estimated the likely increase of the current account deficit and the budget deficit to the level of 2.9% and respectively 3.6% of GDP in 217, in the context of fiscal easing measures and excess demand. Conversely, the inflationist pressures will augment up to the average of % in According to NIS available data, private consumption whose volume increased by 9.% in JanuarySeptember 216, strengthened disposition as driver of economic growth, contributing by 5.6 percentage points to GDP dynamics (+4.8%). The annual growth rate of gross fixed capital formation slowed down to 4.2% (from 7.4% in the first semester) amid the fall in investments in capital repair works and the deceleration of the new construction works. Given the increase in domestic absorption, external sector maintained its negative contribution to GDP growth to 1.4 percentage points, due to the significantly higher increase of imports volume (+1.2%) compared to exports (+7.%) The annual inflation rate reached at the end of the year,54%, slightly below the forecasted level (,37%), price decreases being recorded to nonfood products (.87%) and services (1,83%), due to the effect of reduced VAT for this items in January 216. Contribution to change in real GDP (demand side) in 1.I3.IX Real GDP development in Private consumption Public consumption Gross fixed capital formation Change in stocks 3.7 Source: National Institute of Statistics; FSA calculations Q1_16 Q2_16 Q3_16 Q4_ f 218 f EU Euro area Romania Bulgaria Hungary Poland Czech Republic Germany United Kingdom France Spain Italy Source: Eurostat Percentage change compared with the same quarter of the previous yearseasonally adjusted data; European Commission, Winter forecast 217 2

3 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216 Q316 Jan.15 Mar.15 May.15 Jul.15 Sep.15 Nov.15 Jan.16 Mar.16 May.16 Jul.16 Sep.16 Nov.16 Jan.17 Macroeconomic background in Romania: development of the real sector, inflation and labor market Aggregate supply indicators continued their upward trend in December, but with a reduced pace for industry to 3.6% compared with 5.4% in the previous month. The mitigation of the annual dynamics was observed in sectors with supportive potential, among which the manufacture of motor vehicles (+15.6%), hydrocarbon processing (+17.%) and chemical products industry (+1.6%), simultaneously with a restriction of activity in the consumer goods industry (food, beverages, tobacco products, clothing, leather). As for market services provided to enterprises, the turnover increased by 9.3%, but with a dynamics slowdown of information technology services (+16.1%), transports (+9.8%) and communication (+.3 %), partly due to the base effect, compared with December of the previous year. The construction works continued the downward trend in December (year on year) up to (27.7%) influenced by the negative contribution of capital repair works (41.%) and new construction works (33.3%). As regards the domestic demand, sales in retail trade rose by 7.2%, recording a slight deceleration process on account of the sales of food products and beverages, which for the first time, were reduced by.4% in December. Main sector indicators (annual rate of change, %) Dec.15 Feb.16 Apr.16 Jun.16 Aug.16 Oct.16 Dec.16 Industrial production Construction works Retail trade Services for enterprises The economic sentiment index in EU Source: Eurostat Inflation, monthly data (annual rate of change) Source: National Institute of Statistics; FSA calculations Development of current account by main components (billion euro) Development of external debt by sectors (billion euro) EU 28 Romania Poland Hungary Germany 8 Feb.15 Apr.15 Jun.15 Aug.15 Oct.15 Dec.15 Feb.16 Apr.16 Jun.16 Aug.16 Oct.16 Dec.16 CPI inflation Food goods Nonfood goods Services Secondary income Goods and services Source: NBR Primary income Current Account (%QGDP) Private Sector General Government Central Bank Source: NBR 3

4 Macroeconomic risk in Romania: external position and market perception of sovereign risk Government bond yields (5Y, LC) Evolution of Credit Default Swaps quotations (5Y, USD) Source: Datastream Source: Datastream Romania 5Year bond yields reached an average value of 2.52% in January (2.51% in December). Germany continues to sell 5Y debt at negative yield last month the government bond yields remained at a low level (.46%). In January, CDS quotations decreased for all countries, except France. Romanian CDS quotations have dropped by more than 3% mom in January and reached an average value of bp, while France CDS quotations continued to increase in January as compared to the previous month (+4%). Market risk: evolution of local and international stock indices International and local stock indices yields International indices 1 W 1M 3 M BSE indices 1 W 1 M 3 M EA (EUROSTOXX) 1.4% 1.6% 5.34% BET 3.39% 6.11% 1.38% FR (CAC 4) 1.68% 2.33% 5.31% BETBK 3.6% 6.61% 9.56% DE (DAX).51%.47% 8.16% BETFI 1.82% 5.5% 9.24% IT (FTSE MIB) 4.66% 3.35% 8.56% BETNG 3.91% 9.36% 15.58% GR (ASE) 5.38% 4.95% 3.49% BETTR 3.39% 6.11% 1.38% IE (ISEQ) 1.83% 1.92% 8.11% BETXT 3.15% 5.83% 1.43% ES (IBEX).77%.39% 1.88% BETXTTR 2.77% 5.44% 1.3% UK (FTSE 1).72%.61% 2.8% BETPlus 3.48% 6.16% 1.1% US (DJIA).24%.51% 9.49% ROTX 2.82% 5.14% 7.39% Source: Datastream, FSA s calculations Most of the international stock indices decreased in January as compared to the previous month. DAX index (Germany) gained.5% mom in January, closing the trading day at points, while the worst performer was ASE index (Greece), which dropped by 5% mom in January. BSE indices increased (1 month). The best performer was BETNG index (+9.36%). 4

5 Sep14 Oct14 Oct14 Nov14 Dec14 Jan15 Jan15 Feb15 Mar15 Mar15 Apr15 May15 May15 Jun15 Jul15 Jul15 Aug15 Sep15 Oct15 Oct15 Nov15 Dec15 Dec15 Jan16 Feb16 Feb16 Mar16 Apr16 Apr16 May16 Jun16 Jul16 Jul16 Aug16 Sep16 Sep16 Oct16 Nov16 Nov16 Dec16 Sep14 Oct14 Oct14 Nov14 Dec14 Jan15 Jan15 Feb15 Mar15 Mar15 Apr15 May15 May15 Jun15 Jul15 Jul15 Aug15 Sep15 Oct15 Oct15 Nov15 Dec15 Dec15 Jan16 Feb16 Feb16 Mar16 Apr16 Apr16 May16 Jun16 Jul16 Jul16 Aug16 Sep16 Sep16 Oct16 Nov16 Nov16 Dec Market risk: Evolution of riskadjusted returns Dynamics of riskadjusted returns: Romania vs. Central and Eastern Europe Czech Rep. Hungary Poland Romania.4 Dynamics of riskadjusted returns: Romania vs.austria and Germany Romania Germany Austria Source: Datastream, FSA s calculations The graphs above show the dynamics of the Sharpe ratio estimated using a 6 months rolling windows for the period March 212 January 217. The riskadjusted returns for Romanian and the main Central and Eastern European markets tend to follow the same trend, with rallies during March August 215 and shrinkages that culminated with episodes of significant negative returns, especially for Poland. The last month of 216 witnessed a slide of the riskadjusted performances for all the countries in our analysis, reflecting difficulties in the discounting future political trends and brief upward moves at the end of the sample. 5

6 Market risk: volatility of Romanian government bond yields and the EURRON currency rate 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 EUR/RON depreciation for all maturities with respect to the previous month (RON appreciation). The EUR/RON exchange rate volatility remained low in January 217 but increased sharply in February as the EUR/RON exchange rate depreciated due to the political instability generated by a government decree that would have decriminalized misconduct of public officials. The exchange rate has reached a new equilibrium level above 4.5 EUR/RON (indirect quotation) with a tendency to increase in volatility over the next month up to 4%. Conditional volatility of the EURRON currency rate (annualized standard deviation) Term structure of EUR/RON forward rate 7% FIGARCHBBM model 6% 5% 4% 3% 2% 1% Conditional volatility of the EURRON exchange rate (annualized std.dev) Conditional volatility of the EURRON exchange rate (MA2) week 1 month 2 months 3months 6 months 9 months 12 months 1/31/217 12/3/216 1/29/216 Source: Datastream, FSA s calculations 6

7 Turbulence Index Market risk: financial markets fragility The turbulence index for January 217 keeps a reduced level especially as opposed to the one from June, when it had a huge jump as result of the increase in the volatility of stock market indices postbrexit referendum. Since July we witness the realm of calmenss as macroeconomic indicators are still perceived as weak proofs for the unticipated possible negative longterm trend flagged by Brexit opponents. Calmness Turbulence Stock Market Absorption Ratio The absorption ratio is computed based on stock market index data for the EU 28, for the time interval that covers December 214 to January 217. We notice a general upward trend with the tendency to poise at the highest levels in the last two months. We use the absorption ratio for the EU 27 (without Romania) to measure the contribution of the Romanian stock market and we depict its relevance by comparison with the index for EU 28. The former indicator hovers above the EU 28 indicator for the whole period, which supports the view that, when included in the index, the Romanian stock market contributes to the abatement of the level of systemic risk spawn in the European stock markets and it provides diversification benefits. Absorption Ratio for EU Source: Datastream, FSA s calculations Absorption Ratio for UE w/o Romania 7

8 Jan15 Feb15 Mar15 Apr15 May15 Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec Market risk: financial markets fragility Changes in Stock Market Absorption Ratios Changes in the Differences between Absorption Ratios with and w/o Romania Changes in Absorption Ratio for EU We notice a reduction of this difference in the last three months, as the effects of the Brexit referendum unraveled. The chart exhibits the dynamics of the shocks that caused the trends of these indicators, i.e. the standardized changes of the two indicators. The chart reflects the fact that the increase in the AR for EU28 is steady starting with April 216. A rebound followed the reduction of the change at the end of May. We can interpret the evolution of the differences for the EU 27 as proof of increase in the diversification opportunities that our market provides for international investors for the intervals February May 216 and December 216 January 217. Source: Datastream, FSA s calculations Contagion risk Spillover Indices The Spillover index measures the marginal contribution of the external capital markets on the Romanian stock exchange. On average the Romanian market receives 4% spillover in returns from the European capital market mainly from Austria, Poland and Germany. 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 on Bucharest Stock Exchange. The spillover index had remained low in January mainly due to the forward guidance of FED which had a positive impact on the financial markets. Higher oil price boosted the US economy and led to a decrease in financial contagion across financial markets as commodity prices remained subdued Spillover index Trend Spillover index (HodrickPrescott filter) Crude OilWTI Spot Cushing U$/BBL Source: Datastream, FSA s calculations 8

9 Jan12 Mar12 May12 Jul12 Sep12 Nov12 Jan13 Mar13 May13 Jul13 Sep13 Nov13 Jan14 Mar14 May14 Jul14 Sep14 Nov14 Jan15 Mar15 May15 Jul15 Sep15 Nov15 Jan16 Mar16 May16 Jul16 Sep16 Nov16 Jan12 Mar12 May12 Jul12 Sep12 Nov12 Jan13 Mar13 May13 Jul13 Sep13 Nov13 Jan14 Mar14 May14 Jul14 Sep14 Nov14 Jan15 Mar15 May15 Jul15 Sep15 Nov15 Jan16 Mar16 May16 Jul16 Sep16 Nov16.7 Contagion risk Stock Market Correlations for Romania, Germany and UK Germany Romania Romania France Romania United Kingdom Stock Market Correlations for Germany, France, Netherlands and UK Germany France Germany The Netherlands Germany United Kingdom Source: Datastream, FSA s calculations 9

10 Week/month Liquidity risk on Romanian stock exchanges The BSE Trading Activity (All the Segments) during January 217 The SIBEX Trading Activity during January 217 No. of transactions Volume Value EUR % 36 January , ,574,275 32,32, % 913 January , ,836,545 45,264, % 162 January ,922 16,968,54 28,13, % 2327 January , ,698,54 39,232, % 331 January 217 6,672 26,23,41 14,711, % Total January ,4 713,28, ,255,45 1.% Week/month No. of transactions Volume Value EUR % 36 January , % 913 January , % 162 January , % 2327 January , % 331 January , % Total January ,63 1,997,97 1.% Source: BSE, FSA s calculations; BNR monthly average exchange rate for IAN.217=4.516 Source: Sibex data, FSA s calculations The BSE s Most Traded Companies during January 217 (Only the Main Segment) Top of intermediaries during January 217 Main market Deal Total Symbol Value (EUR) % Value (EUR) % Value (EUR) % TLV 23,386, % 8,399, % 31,786, % FP 27,661, % 2,333, % 29,995, % SNP 2,61, % 2,218, % 22,279, % SNG 14,633, % 756,53 3.5% 15,39, % BRD 1,186, % 2,183, % 12,369, % TGN 8,854, % 454, % 9,39, % EL 7,999, % 91, % 8,9, % M 4,154, % 4,77, % 8,232, % TEL 1,834, % 1,338, % 3,173,11 2.1% MCAB 2,591, %.% 2,591, % SIF1 34,463.26% 1,633, % 1,973, % SNN 1,597, %.% 1,597, % SIF2 1,558, %.% 1,558,26.99% COTE 1,31,61.98%.% 1,31,61.83% SIF3 1,23,66.77%.% 1,23,66.65% Top 15 Total 96,3% Rank Intermediary name Traded Value (month level) EUR % from Total Value (month level) 1 WOOD & COMPANY FINANCIAL SERVICES, a.s. PRAGA 78,56, % 2 RAIFFEISEN BANK 47,792, % 3 SWISS CAPITAL S.A. 33,453, % 4 IEBA TRUST 32,349, % 5 BANCA COMERCIALA ROMANA 24,773, % 6 BT CAPITAL PARTNERS 24,197, % 7 CONCORDE SECURITIES LTD 12,66, % 8 TRADEVILLE 12,583, % 9 SSIF BRK FINANCIAL GROUP S.A. 6,561, % 1 BRD Groupe Société Générale 5,53, % 11 PRIME TRANSACTION 5,45,69 1.6% 12 IFB FINWEST 4,927, % 13 INTERCAPITAL INVEST 4,148, % 14 RAIFFEISEN CENTROBANK AG 3,974, % 15 ALPHA FINANCE ROMANIA 3,642, % Top 15 Total 95,61% Source: BSE, FSA s calculations Source: BSE, FSA s calculations 1

11 Millions EUR Liquidity risk on Romanian stock exchanges The Market Capitalization on BSE during January 217 Only Main segment 34,4 34,2 34, 33,8 33,6 33,4 33,2 33, 32,8 32,6 32,4 Market Capitalization EUR Source: BSE, ASF calculations The analysis of liquidity at the Bucharest Stock Exchange relies on data with daily frequency for the 25 financial assets that compose the BETXT, extracted from the Bloomberg platform for the period January 212 January 217. The data employed for this analysis accounts for the difference between Bid and Ask prices, the volume of transactions and last daily prices. Based on these data four instruments for measuring liquidity were built: the difference BidAsk percentage volume of transactions, the gauge of illiquidity according to Amihud (22) and the rate of liquidity as computed by Hui, Heubel (1984). These indicators were calculated for each of the 25 financial assets and based on these values composite indices were estimated by means of the weights of each asset in the BETXT. We notice an increase of liquidity at the beginning of 214 and generally an abatement ever since with a tendency towards a rise acknowledged lately. The noteworthy moments are in September and October 215, a rebound in December followed by a general downward trend. The last four months featured an increase, driving the liquidity index to the highest levels from more than one year. PCALiquidity Index all period PCALiquidity Index last month Source: Bloomberg, FSA s computations 11

12 Thousands USD Thousands 2% 18% 16% 14% 12% 1% 8% 6% 4% 2% % Turnover velocity Liquidity criteria according to FTSE Turnover velocity is a liquidity indicator used by FTSE to classify countries in the categories of frontier, emerging or advanced markets. The analysis of the indicator during the period January 21January 216 shows a significant increase of the liquidity starting with 211 (Fondul Proprietatea was listed on BVB) and a gradual decline from January 212 as the positive effects dissipate. At the end of the year 213, the ascending tendency was resumed but more slowly. In accordance with the FTSE methodology, Romania must reach the threshold of 15% in order to be updated in the category of emerging markets (for the time being, the indicator is about 7%). In September 216, FTSE included Romania on the Watch List to possible classify to Emerging Market status but mentioned that the country still fails to meet the Turnover Velocity criterion. Last 12 months (Average) Last 12 months (Absolute) Source: BVB, FSA data, FSA s calculations Average daily turnover Average Daily Volume 2,5 BRD 6, 2,124 TLV 5, 46,461 2, EL SNG 4, 52,143 43,496 1,5 1, 5 1, BRD TLV EL SNG SNP TGN SNN TEL COTE BVB SNP TGN SNN TEL COTE BVB 3, 2, 1, 26, ,83 data, FSA s calculations Source: BSE, FSA s calculations 12

13 Billions USD Billions USD MSCI: Quantitative Indicators for Emerging Market Status EM MSCI 1st Criterion: Market cap > 1.26 bn. USD Jan15 Feb15 Mar15 Apr15 May15 Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 BRD EL SNG SNP TLV MSCI Criterion EM MSCI 2nd Criterion: Free float cap >.63 bn. USD Jan15 Feb15 Mar15 Apr15 May15 Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 BRD EL SNG SNP TLV MSCI Criterion EM MSCI 3rd Criterion: ATVR > 15% 8% 6% 4% 2% % Jan15 Feb15 Mar15 Apr15 May15 Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 BRD EL SNG SNP TLV MSCI Criterion Source: ASF Calculations January31,

14 Dec14 Jan15 Feb15 Mar15 Apr15 May15 Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Dec14 Jan15 Feb15 Mar15 Apr15 May15 Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Dec14 Jan15 Feb15 Mar15 Apr15 May15 Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Dec14 Jan15 Feb15 Mar15 Apr15 May15 Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Dec14 Jan15 Feb15 Mar15 Apr15 May15 Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 MSCI: Quantitative Indicators for Emerging Market Status BRD Indicators' variation to MSCI criterion EL Indicators' variation to MSCI criterion 1,,, 8,, 6,, 4,, 2,, (2,,) (4,,) 25% 2% 15% 1% 5% % 5% 1% (5,,) (1,,) (15,,) (2,,) (25,,) (3,,) (35,,) 6% 5% 4% 3% 2% 1% % 1% Market Cap USD Free float Cap USD ATVR % Market Cap USD Free float Cap USD ATVR % SNG Indicators' variation to MSCI criterion SNP Indicators' variation to MSCI criterion 3,,, 2,5,, 2,,, 1,5,, 1,,, 5,, (5,,) 5% 4% 3% 2% 1% % 1% 6,,, 5,,, 4,,, 3,,, 2,,, 1,,, (1,,,) 4% 2% % 2% 4% 6% 8% 1% Market Cap USD Free float Cap USD ATVR % Market Cap USD Free float Cap USD ATVR % TLV Indicators' variation to MSCI criterion 1,,, 8,, 15% 1% Starting with August 215, a company fulfills simultaneously the three quantitative MSCI criteria: TLV 6,, 4,, 2,, 5% % 5% 1% In addition, there are four companies that have the potential to meet the MSCI criteria: Three companies meet two out of three criteria: BRD, SNG, SNP; One company meets one out of three criteria: EL. Market Cap USD Free float Cap USD ATVR % The data series for EL, SNG and SNP were modified in order to count the GDR transactions. Source: ASF Calculations, January 31,

15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 relativep/e The degree of over or underevaluation of Bucharest Stock Exchange compared with the region Risk assessment and the benefit of diversification The average correlation coefficient for the 25 most liquid companies traded on BSE Romania/Hungary Romania/Czech Romania/Poland Romania/Germany Romania/Austria Source: Datastream, FSA s calculations perc.75% perc.25% Corelația medie Average correlation 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 reevaluation is calculated by dividing the P/E forward ratios for different markets and indicates how much investors pay for the anticipated next year in comparison with another market. This convergence in the indicator (relative P/E forward ratio) can be understood in relation with the search for yield across different markets. In January 217 the ratio was lower than 1 thus indicating that the Romanian capital market was more attractive in comparison with the analyzed countries. This convergence in the indicator (relative P/E forward ratio) can be understood in relation with the search for yield across different markets. During the first weeks of 217 the correlations among the constituents of BETXT Index increased gradually, which could be a sign of increasing contagion on the local market, but until now the overall level of correlations is still low. 15

16 P/E forward 12 M P/E forward 12 M Risk assessment and the benefit of diversification Since the longterm treasury yields include inflationary expectations, there is a dependency between the growth of market returns (P/E forward ratio) and the inflation dynamic adjusted for volatile goods (CORE 2 adjusted). The P/E forward ratio increased over the last two years for the Romanian capital market due to the widespread trend of decreasing treasury yields. The increase is relevant to the search for yield environment. On the medium term speculative bubbles might burst if the market returns increase over the equilibrium level without being sustained by fundamentals. On the other hand, given that the search for yield environment is a global trend, the capital markets are more prone to contagion effects from neighboring markets and developed ones as well. Romanian market index versus inflation (CORE2 adjusted) Romanian market index and longterm treasury yields (1 years) Longterm treasury yields (1 years) Source: Datastream, FSA s calculations The estimates of the equilibrium level (particle filter estimates) CORE2 adjusted Source: Datastream, FSA s calculations /31/216 4/3/216 7/31/216 1/31/216 1/31/ /31/216 4/3/216 7/31/216 1/31/216 1/31/217 Romanian Capital Market Index (211=1) Source: Datastream, FSA s calculations Equilibrium level (particle filter estimate) STOXX6 (211=1) Source: Datastream, FSA s calculations Equilibrium level (particle filter estimate) The estimates of the equilibrium level (particle filter estimates) indicate that in January the Romanian capital market increased much over the equilibrium level partly due to growing market liquidity. Although in the last quarter it was near the equilibrium level, the STOXX6 index is slightly increasing while being around the equilibrium level. The empirical analysis shows that the financial markets are currently not perturbed by external events nor manifest unsustainable endogenous price growth (asset bubbles). 16

17 48.7% 67.31% 79.58% 8.28% 96.27% 99.22% 54.1% 74.92% 89.15% 42.19% 62.27% 77.93% 44.83% 69.17% 86.32% 62.39% 73.83% 83.3% 6.32% 74.1% 84.27% Concentration risk Concentration risk of nonlife insurance undertakings (by value of GWP at 3 September 216) Concentration risk of life insurance undertakings (by value of GWP at 3 September 216) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% %.117 9/3/215 9/3/216 CR3 CR5 CR7 HHI % 8% 7% 6% 5% 4% 3% 2% 1% % /3/215 9/3/216 CR3 CR5 CR7 HHI % 9% 8% 7% 6% 5% 4% 3% 2% 1% % Concentration risk of investment funds in Romania (by net assets 3 December 216).259 Openend funds CR3 CR5 CR7 HHI.1454 Closedend funds Concentration risk of intermediaries on the BSE (by value of transactions during January 216 Main segment & ATS, all spot instruments ) 1%.14 9% 8% %.1 6%.8 5% 4%.6 3%.4 2% 1%.2 % 17

18 Millions EUR Millions EUR 72.46% 9.33% 1.% 69.23% 85.65% 94.93% Concentration risk of private pension funds (by net assets at 1/3/217) Concentration risk 1%.225 9% 8% 7% 6% 5% 4% 3% According to the main indicators used by the Competition Council, the concentration risk in the nonlife insurance market is medium to high level and ranked a moderate growth over the last year. Moreover, the life insurance market concentration degree is high but steady in the last year. The situation is similar in the case of private pension funds market (Pillar II and Pillar both III), but explainable by objective reasons related to their operating mechanism and the current state of the market. 2% 1% % Pillar II Pillar III.25.2 Also on the capital market, both for OEIFs (although the number of investment funds is high) and intermediaries on the BSE, the concentration degree is medium to high due to the fact that top market participants sum up a significant share of the total assets. CR3 CR5 CR7 HHI Solvency risk in insurance Evolution of admitted liquid assets vs. Short term obligations. Liquidity coefficient evolution Nonlife insurance Life insurance 1,4 3. 1, ,2 1, , Dec15 Jun16 Dec16. Dec15 Jun16 Dec16 4. Total admitted liquid assets Short term obligations Liquidity coefficient Total admitted liquid assets Short term obligations Liquidity coefficient 18

19 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Mil. EUR Mil. EUR EUR Specific developments in the private pension funds sector: Mandatory pension funds (2 nd Pillar) Total assets (EUR), number of participants and return rates Evolution of total assets and net value of an individual account Mandatory pension fund Total Assets 1 Feb 217 (EUR) Participants (persons) Jan 217 Annualized 24 months return rate Jan 217 ARIPI* 69,929, , % AZT VIITORUL TAU 1,569,55,23 1,53, % BCR 456,86,99 572, % BRD 238,492, , % METROPOLITAN LIFE 1,2,48, , % NN 2,625,258,351 1,926, % VITAL 674,851, , % Total 7,195,252,223 6,831,848 n/a 8, 7, 6, 5, 4, 3, 2, 1, 1,2 1, *Minimum return rate for high risk pension funds: 1.281% Minimum return rate for medium risk pension funds:.281% Weighted average return rate for all pension funds: % Total assets Pillar II (Mil. EUR, left axis) Average net value of an individual account (EUR, right axis) Evolution of gross contributions New participants in 2 nd Pillar Age and sex structure of participants at 31 January, , 35, < 19 years 2 24 years (59,931) (321,711) 71, , , years (563,134) 635, , 2, 15, 1, 5, 3 34 years years 4 44 years years 5 54 years years 6 64 years (557,52) (591,168) (519,275) (465,126) (194,521) 631,46 657, , ,5 188,874 > 65 years Gross contributions (Mil. EUR) New participants (persons) Men Women 19

20 Specific developments in the private pension funds sector: Mandatory pension funds (2 nd Pillar) Mandatory pension fund s portfolio at January 31, 217 (EUR). Assets structure Assets Category Assets Value (EUR) % Total Assets Government Bonds 4,598,435, % Equity 1,43,31, % Bank Deposits 58,683, % Investment Funds 268,549, % Corporate Bonds 245,37, % Municipal Bonds 84,473, % Supranational Bonds 78,943, % ETC 9,568,62.13% Hedging 1,74,842.2% Other assets (54,733,616).77% Total 7,143,667,613 1.% RO FR AT RU LU US TR CZ JE ES DK RO 92.72% Country exposure Other countries, 7.28% DE IE GB PL NL IT NO HU CH SI AU Currency exposure and risk hedging Currency Exposure value (EUR) % Total assets % Hedging RON 6,371,629, % EUR 674,434, % 62.25% USD 51,214,72.57% 17.15% PLN 18,366,628.24% CZK 9,696,48.14% TRY 6,5,349.9% HUF 5,361,337.6% GBP 5,21,25.5% CHF 1,483,827.2% DKK 264,425.% 2

21 Mil. EUR Mil. EUR EUR Fond Specific developments in the private pension funds sector: Optional pension funds (3 rd Pillar) Total assets (EUR), number of participants and return rates Total assets (EUR), 1 Feb 216 Participants (persons) Jan 217 Annualized 24 months return rate Jan 217 AEGON ESENTIAL 1,428,25 3,823 n/a AVIVA PENSIA MEA 12,518,65 1, % AZT MODERATO 42,731,336 37, % AZT VIVACE* 17,112,355 2, % BCR PLUS 6,31,39 124, % BRD MEDIO 18,313,328 22, % GENERALI STABIL 3,453,938 5, % NN ACTIV* 38,315,47 39, % NN OPTIM 134,975, , % RAIFFEISEN ACUMULARE 14,835,268 1, % Total 343,985, ,525 n/a Evolution of total assets and net value of an individual account *Minimum return rate for high risk pension funds:.6961% Minimum return rate for medium risk pension funds: % *Weighted average return rate for high risk pension funds: 3.338% Weighted average return rate for medium risk pension funds: 2.234% Evolution of gross contributions New participants in 3 rd Pillar Age and sex structure of participants at January 31, 217 Total assets Pillar III (Mil. EUR, left axis) 66 7, 6, 5, 4, 3, 2, 1, Gross contributions (thousands EUR) Average contribution per participant (EUR) Persons 9, 8, 7, 6, 5, 4, 3, 2, 1, < 19 years 2 24 years years 3 34 years years 4 44 years years 5 54 years years 6 64 years > 65 years (45) 97 (2,515) 2,613 (12,72) 12,688 (24,962) 23,28 (31,548) 3,863 (34,693) 32,454 (47,82) 42,42 (27,959) 25,232 (25,594) 24,43 (4,817) 1,67 (432) 1,393 Men Women 21

22 Specific developments in the private pension funds sector: Mandatory pension funds (3 rd Pillar) Optional pension fund s portfolio at January 31, 217 (EUR) Asset class Asset value % of Total Assets Government Bonds 28,912, % Equity 75,43, % Bank Deposits 17,696, % Corporate Bonds 14,67, % Investment Funds 12,37,3 3.53% Municipal Bonds 7,737, % Supranational Bonds 5,478, % Metal funds 1,84,663.32% Hedging 7,72.2% Other assets (1,567,53).46% Total Assets 341,459,654 1.% RO, 91.87% Country exposure of optional fund s assets Supranational bonds,.22% Other countries, 7.91% Currency exposure and risk hedging (EUR) Currency Exposure value (EUR) % Total assets % Hedging RON 295,467, % EUR 42,965, % 6.5% USD 1,611,44.47% PLN 692,98.2% CZK 582,442.17% GBP 139,996.4% TRY 97.% HUF 3.% RO DE RU GB IT IE AT FR Supranational bonds CZ LU PL NL TR US UK NO SI 22

23 Specific developments in the investment funds sector Total assets by categories of undertakings (EUR billion) 12/3/ Openend funds Closedend funds SIFs FP Investment portfolios by categories of undertakings and classes of assets (EUR million) Strategic allocation of portfolios (EUR billion) Shares Bonds Government securities Type of investors /3/216 12/3/ Deposits and UCITS/OCIU units available funds TOTAL ASSETS: 12/3/216 Open Closed SIFs FP TOTAL Shares ,38 2,29 3,8 Bonds 3, ,42 Government securities Deposits and available funds 1, ,24 UCITS/OCIU units Other (79) (44) Assets structure by investment policy (risk category, EUR) NET ASSET NET ASSET Openend funds 9/3/216 12/3/216 Equity funds 76,968,466 76,167,869 Balanced funds 11,392,632 19,476,428 Bond funds 4,53,559,363 4,427,959,844 Money market funds 22,986,487 24,51,75 Other funds 188,811,4 179,419,453 T O T A L 4,929,717,952 4,817,74,669 Closedend funds NET ASSET 9/3/216 NET ASSET 12/3/216 Equity funds 66,64,537 65,689,21 Balanced funds 46,783,93 46,571,51 Bond funds 817, ,995 Money market funds Other funds 19,576,7 19,434,419 TOTAL 133,242, ,356,945 Openend funds market share according to investment policy and net asset Money Other market funds, funds, 3.72%.5% Bond funds, 91.92% 4, 3, 2, 1, Equity funds, 1.58% Balanced funds, 2.27% 316,4 Openend funds Natural persons 88,91 1, Closedend funds Legal persons Closedend funds market share according to investment policy and net asset Bond funds,.5% Other funds, 14.68% Balanced funds, 35.19% Equity funds, 49.63% 23

24 Returns (%) Specific developments in the investment funds sector ARDL model (4,,,) Dynamics of openend composite bond index: a term structure view Rsquared 41%.6 Openend bond composite index Fitted model (Short and long term yields, 3 months interbank offered rate, term structure slope) Source: Datastream, FSA calculation The composite bond index increased in the third quarter of 216 due to the expectations of low interest rates in the shortrun and to the improvement of economic conditions. The openend bond composite index is an equalweighted returns index of the openend bond funds returns. The dispersion of index performance increased at the end of second quarter experiencing a sharp drawdown but turned out positive in the third quarter. The empirical analysis shows that the termstructure model which includes more information from the term structure of Treasury yields tends to explain better the dynamics of the openend bond funds returns than a macrofinancial model which explains the bond index returns in terms of equity market liquidity, expected inflation and slope of the interest rates. The slope is the difference between short term Treasury yields (6 months) and longterm ones (1 years). When the slope is negative it means that the yields tend to increase as the maturity increase and describe a normal economy, while an inverted yield curve is described by a positive slope. The slope of interest rates explains around 11% from the dynamics of the openend (bond) funds returns, while the four lags of composite index explains most of its dynamics. 24

25 Millions EUR Millions EUR 1,7 Specific developments in the insurance market in Romania Evolution of insurance market (9/3/216) Gross written premiums (total) MTPL gross written premiums 3 1,4 1,1 1,292 1,217 1,139 1,1 1,121 1,55 1,13 1, (1) Sep9 Sep1 Sep11 Sep12 Sep13 Sep14 Sep15 Sep16 Nonlife insurance Life insurance Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Share of main insurance classes by GWP Gross claims paid Nonlife insurance Other classes, 11.2% A1, 51.39% A3, 24.31% A8, 13.29% A2, 4.31% C3, 27.22% Life insurance 1, 928 Other classes,.85% C1, 67.61% Sep9 Sep1 Sep11 Sep12 Sep13 Sep14 Sep15 Sep Nonlife insurance Life insurance 25

26 Millions EUR Millions EUR Specific developments in the insurance market in Romania Total eligible own funds to cover the Solvency Capital Requirement (SCR) Solvency Capital Requirement (SCR) and Minimum Capital Requirement (MCR) 1,2 1, , Day 1 9/3/216 Day 1 SCR MCR 9/3/216 DAY 1 Q3 216 Structure of eligible own funds Day 1 Structure of eligible own funds 9/3/216 Tier 1 Restricted, 1% Tier 1 Unrestricted, 93% Other, 7% Tier 2, 5% Tier 1 Unrestricted, 9% Other, 1% Tier 2, 9% Tier 3, 1% Tier 3, 1% On 1 January 216 eligible own funds to cover SCR were in amount of.88 billion EUR. Eligible own funds to meet the SCR were mainly composed of unrestricted Tier 1 (93.11%) and Tier 2 items (4.77%). Eligible own funds had an upward trend, reaching 1.4 billion EUR. In terms of own fund items, there were no significant changes, unrestricted Tier 1 items still having the largest share (9%) at the end of September

27 Press releases and publications of European and international financial institutions in December EUROPEAN UNION ESMA FSB IMF WORLD BANK 2 January: Public Consultation on the Capital Markets Union Midtern review. 11 January: Followup report on best execution requirements. 18 January: Joint Report ESMA/EBA on the functioning of the Capital Requirements Regulation. 12 January: FSB publishes policy recommendations to address structural vulnerabilities from asset management activities. 25 January: FSB publishes reports on the rehypothecation of client assets and collateral reuse. January: World Economic Outlook Update. January: 217 Global Economic Prospects Report. 27

28 Conducted by: Strategy and Financial Stability Department Market Analysis and Statistics Unit Disclaimer This report is a monthly bulletin of information and analysis on key events and developments on the markets regulated and supervised by Romanian FSA. This report is built based on the latest information available at the time of writing, but some statistical data are provisional and shall be reviewed in the FSA s subsequent publications. Due to the rounding, the totals may not match exactly the amount of components, or small differences may occur by reference to the percentage changes indicated in charts or tables. All rights reserved. Reproduction of the information for noncommercial and educational purposes is only allowed with acknowledgement of the source. Financial Supervisory Authority 15 Spaiul Independentei Street, 5th District, Postal code 592, Bucharest office@asfromania.ro 28