Sunday, January 25, 2009

Romanian Stocks Decline to Five-Year Low on Risk Aversion

By Irina Savu

Jan. 23 (Bloomberg) -- Romania’s benchmark stock index plunged to the lowest in five years, tracking international losses, as concern about the spreading global economic slowdown led investors to withdraw from emerging markets.

The benchmark BET index fell 5.8 percent to close at 2,300 points, its lowest since January 2004, weighed down by Banca Transilvania SA and Petrom SA, which account for almost a third of the index. The BET has fallen 69 percent in the past year.

Eastern Europe’s economies are slowing as investors flee riskier assets in emerging Europe and richer trading partners in western Europe struggle with imploding demand in the aftermath of the global financial crisis.

“The banks are the locomotives that drag the stocks down now, there’s no surprise here when we see big international banks dropping 20 percent,” Florin Irimin, a trader at Intercapital Invest SA, said by phone in Bucharest. “Risk aversion is on the rise, our small bourse can’t decouple from the international trend, especially since we have our own problems.”

Banca Transilvania, the country’s second biggest publicly traded bank, slumped 10.5 percent to 0.89 leu and BRD-Groupe Societe Generale, Romania’s second-biggest lender by market value, lost 6.3 percent to 6.75 lei. The stock has retreated 65 percent in the past year. Romania’s largest oil company Petrom declined 6.6 percent to 0.156 leu.

After years of growing prosperity that drew investment from companies including Carrefour SA, Ikea, Starbucks Corp., Nokia Oyj, and Ford Motor Co., Romania’s economy is slowing as the global crisis spreads to emerging markets.

Slowing Growth

Romania’s government, which took office last month, predicted on Jan. 16 that growth will slow to 2.5 percent this year from 9.1 percent, the fastest pace in the European Union, in the third quarter of 2008.

Standard & Poor’s and Fitch Ratings have downgraded Romania’s debt rating to junk in the past three months, citing increased government spending among other reasons. Fitch lowered Romania two notches to BB+ from BBB, while S&P cut its rating on the country to BB+ from BBB-.

The leu is at the weakest on record after the global credit crisis that left banks with losses and writedowns totaling about $1 trillion prompted investors to pull money out of emerging markets. At the same time, private debt is rising by 50 percent a year, wages at a 20 percent clip, and the current-account deficit has reached 14 percent of gross domestic.

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net.

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