Tuesday, December 8, 2009

Romania Stocks Fall Most in 4 Months on Vote; Bond Risk Jumps

By Piotr Skolimowski

Dec. 7 (Bloomberg) -- Romanian stocks slumped the most in almost four months and bond risk surged after the re-election of President Traian Basescuprompted his rival to contest the vote, deepening a political crisis that threatens ties with international lenders.

Banca Transilvania SA and Rompetrol Rafinare SA led Bucharest’s BET indexdown 4.5 percent, the steepest drop since Aug. 17. Credit-default swaps on Romanian government bonds rose for the first time in seven days, climbing 15.5 basis points to 265, according to CMA DataVision prices. The leu fell as much as 0.9 percent, the most in two week, and traded down 0.3 percent as of 6:31 p.m. in Bucharest.

Basescu won re-election by less than a percentage point, leading rival candidate Social Democratic Party leader Mircea Geoana to challenge the result. Since the collapse of the Cabinet in October, the European Union’s second-poorest member has been unable to pass a 2010 budget and repair ties to unlock a $30 billion international bailout from the International Monetary Fund that suspended payments a month ago.

“Buying credit protection is the best way to play this situation,” Timothy Ash, London-based head of Europe, Middle East and Africa economics at Royal Bank of Scotland Group Plc, said by telephone. The default swaps, which rise as perceptions of credit quality deteriorate, may climb to 280, he said.

Basescu gained 50.3 percent of the vote, compared with 49.7 percent for Geoana, the Central Electoral Bureau said today after all votes were counted. Romanians went to the polls in the second round of presidential elections yesterday with Geoana ahead in the final opinion survey, 54 percent to 46 percent.

Six-Week Low

Stocks rallied last week and default swaps fell to a six- week low on speculation Geoana would win the election and break a political deadlock.

The outcome “means more stalemate and more uncertainty,” said Lars Christensen, the head of emerging markets strategy at Danske Bank A/S in Copenhagen. “This would make it hard for IMF to release funds any time soon and that’s negative for Romanian markets.”

UniCredit SpA withdrew its recommendation to buy the leu against the euro, saying a lack of a stable government in Romania is negative for the currency in “the near term” as the country will not receive money from IMF until a Cabinet is formed, according to a report to clients today.

Rompetrol, the country’s second-largest refiner, slid 8.6 percent. Banca Transilvania, which comprises a quarter of the BET’s weighting, lost 3.2 percent, while BRD-Groupe Societe Generale SA, Romania’s second-biggest lender, lost 5 percent.

Courts May Decide

The decision by Geoana’s Social Democrats to contest the vote may leave the choice about the winner up to the courts. The party will decide on a post-election strategy by tomorrow, said Liviu Dragnea, the party’s vice president, at a news conference in Bucharest today.

The close election result may hinder Basescu’s third attempt to push a third candidate for premier through Parliament and may prompt him to call early general elections. Basescu supports raising taxes and cutting spending while Geoana promised to scrap the 16 percent flat tax on income for a rate that rises with income, to narrow the state budget deficit.

To contact the reporter on this story: Piotr Skolimowski in Warsaw atpskolimowski@bloomberg.net

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