This rally highlights how political clarity can restore investor confidence, even amid broader uncertainty. Interestingly, the initial election result did not cause one of the worst market declines of the past decade. Instead, the sharpest reactions have historically been tied to legislative or policy uncertainty. For example, December 19, 2018, marked the worst trading day in ten years, with an 11.2% drop following the announcement of sweeping fiscal measures, including the "greed tax" on banks, gas price caps, and turnover taxes on energy companies. Investors were left reeling, fearing significant profit cuts and reduced dividends from key listed companies.
The Romanian market's most volatile periods often stem from a mix of internal and external factors. Internal shocks, such as the 2018 fiscal measures or the 2017 turnover tax proposal, have driven five of the 20 worst trading days in the past decade. These events underline how unpredictable policy changes can severely impact investor sentiment. Similarly, internal factors were behind seven of the 20 best trading days, such as February 4, 2019, when signs of collaboration between the Romanian government and central bank suggested an easing of banking regulations, or December 6, 2024, when political uncertainty surrounding the elections was resolved by the court's decision. External events, however, have played an even larger role, accounting for 13 of the 20 worst trading days. The COVID-19 pandemic alone was responsible for nine of these, including March 16, 2020, when Romania declared a state of emergency, causing a 9.6% drop within a single day. External drivers also sparked recoveries, such as March 2, 2020, when anticipation of central bank interventions drove a 3.6% rally, or November 9, 2020, when Pfizer's announcement of successful COVID-19 vaccine trials further boosted markets.
This analysis also highlights the role of investor psychology in shaping market movements. Political events, such as the annulled elections or fiscal reforms, create an environment where uncertainty becomes the primary driver of decision-making. Investors often interpret abrupt changes or unclear policies as systemic risks, leading to sharp sell-offs even in the absence of immediate financial consequences. Conversely, clarity and resolution, as seen in the aftermath of the election annulment, tend to restore confidence quickly, showcasing how sentiment-driven the market can be. Understanding these patterns is crucial for investors who seek to capitalize on periods of heightened volatility by identifying oversold opportunities or anticipating rebounds – and these, as the numbers show us, happen generally very quickly. Romania's market is characterized by a unique volatility dynamic, where internal shocks that trigger sharp declines are frequently followed by rapid and robust recoveries.
Another factor worth noting is the significant interplay between local and global events in determining market trends. While Romania's capital market is relatively small compared to global peers, it remains highly sensitive to external shocks, such as oil price volatility, geopolitical tensions, or global economic slowdowns. For example, the early 2020 COVID-19 sell-offs and subsequent recovery underscored the extent to which local markets are intertwined with global developments. At the same time, internal factors like the 2018 fiscal measures reveal the outsized impact domestic policy decisions can have. This dual exposure to local and international dynamics positions the Romanian market as both a risk and an opportunity for investors, requiring a nuanced approach that balances short-term fluctuations with long-term growth potential.
Looking at the broader patterns of volatility, 2020 stands out as the most turbulent year, with nine of the worst trading days and six of the best. The pandemic disrupted global markets, leading to sharp sell-offs in March as lockdowns intensified, followed by significant rallies driven by fiscal stimulus and central bank interventions. Political events, while less frequent, have had an outsized impact when they do occur. The fiscal reforms of 2018 and 2019 and the Ukraine conflict in 2022 show how domestic and regional instability can erode market confidence. Interestingly, the Romanian market has demonstrated a consistent ability to rebound from extreme declines, particularly when uncertainties are resolved. For instance, the 2018 fiscal measures prompted both the worst (-11.2% on December 19) and one of the best trading days (+6.9% on December 24) within less than a week time.
Investor reactions often hinge on the clarity and perceived fairness of policy decisions. Abrupt or ambiguous fiscal measures, such as those in 2018, tend to trigger panic, as do geopolitical escalations like the Russia-Ukraine conflict, which brough 3 out of 20 worst trading days in the last decade for the Bucharest Stock Exchange. Global economic disruptions, including the COVID-19 pandemic, have had a similarly destabilizing effect. Yet, the market's ability to recover quickly from shocks underscores its resilience and the opportunities it presents for long-term investors.
The key takeaway from the past decade is that while market volatility is inevitable, identifying and understanding its drivers, be they political, economic, or global, enables investors to navigate with greater confidence. This insight is especially pertinent as the BET-TR index evolves, reflecting the dynamic interplay between local developments and global trends. Importantly, despite short-term shocks, the long-term trajectory of the market remains positive. Over the past decade, the BET-TR index recorded an annual loss in only one out of 10 years – 2022, when the index recorded a 2% decline. Cumulatively, the index achieved an impressive growth of 421% between December 11, 2014 and December 11, 2024, fueled by both the reinvestment of dividends and the price appreciation of the 20 blue-chip companies featured in the BET index.
Worst Days for the Romanian Capital Market (BET-TR index) in the last decade
1. December 19, 2018 (-11.2%): Romanian Finance Minister announced measures including a "greed tax" on banks tied to the ROBOR rate, gas price caps, and energy company turnover taxes via an Emergency Ordinance. These measures triggered a market collapse as investors anticipated significant profit impacts for major companies.
2. March 16, 2020 (-9.6%): The state of emergency due to COVID-19 was declared in Romania, intensifying market fears amid escalating global pandemic concerns.
3. March 9, 2020 (-7.5%): Global markets panicked after OPEC and its allies failed to agree on production cuts, leading to a price war initiated by Saudi Arabia. This collapse in oil prices, combined with fears of economic disruption from the spreading COVID-19 pandemic, exacerbated market volatility.
4. August 24, 2015 (-6.3%): China's "Black Monday" caused the Shanghai Composite Index to fall by 8.5%, triggering global market turmoil and impacting Romanian stocks.
5. March 4, 2022 (-5.3%): Escalation in the -Ukraine conflict led to heightened geopolitical instability and sell-offs in Eastern European markets.
6. March 12, 2020 (-5.1%): A day after the WHO declared COVID-19 a pandemic, U.S. President Donald Trump announced travel restrictions from Europe to the U.S., compounding market fears.
7. January 18, 2016 (-5.1%): Continued oil price declines, with prices staying below $30/barrel, drove fears of oversupply as Iran prepared to resume exports following lifted sanctions.
8. December 21, 2018 (-4.7%): Both international and local investors feared the impact of fiscal measures proposed in Romania, including a "greed tax" on banks tied to the ROBOR rate, gas price caps, and turnover taxes on energy companies. These measures, part of an Emergency Ordinance, were expected to significantly reduce profits and dividend payouts for major listed companies.
9. February 28, 2020 (-4.6%): Panic selling persisted globally, marking the steepest weekly decline since 2008, as COVID-19 signalled a looming economic shock for Western economies.
10. January 14, 2019 (-4.2%): Stocks plunged as investors continued to react to fiscal measures introduced in December 2018, including progressive taxes and caps impacting banking, energy, and telecom sectors.
11. March 23, 2020 (-4.2%): Markets remained volatile as COVID-19 lockdown measures intensified across Europe and Romania.
12. February 24, 2022 (-4.1%): Russia's invasion of Ukraine led to regional instability and sell-offs in Eastern Europe.
13. April 15, 2020 (-4.0%): The IMF warned of the worst global economic crisis since the 1930s due to COVID-19, further dampening investor confidence.
14. March 11, 2020 (-3.9%): Rising COVID-19 cases in Europe and fear of economic disruptions led to sharp declines in global and local markets.
15. March 7, 2022 (-3.8%): The Russia-Ukraine war continued to drive uncertainty and regional market volatility.
16. December 28, 2022 (-3.7%): The Romanian government announced discussions of an Emergency Ordinance for windfall taxes on energy companies, sparking market concerns.
17. June 29, 2017 (-3.7%): The new Romanian government proposed a turnover tax to replace profit tax, which created uncertainty and pressure on high-revenue, low-margin businesses.
18. August 5, 2024 (-3.6%): Global market turbulence, fuelled by U.S. recession fears and record-high volatility, dragged down Romanian stocks.
19. April 30, 2020 (-3.6%): Economic data reflecting the severe impact of COVID-19 lockdowns weighed heavily on markets.
20. March 18, 2020 (-3.5%): Continued sell-offs driven by escalating COVID-19 fears and lockdown measures impacted global and Romanian markets.
Best Days for the Romanian Capital Market (BET-TR index) in the last decade
1. December 24, 2018 (+6.9%): Following a significant market drop due to unexpected fiscal measures announced by the Romanian government, the market rebounded as investors adjusted to the new information and found opportunities in oversold stocks.
2. March 9, 2022 (+6.9%): Global markets experienced a relief rally amid hopes for de-escalation in the Russia-Ukraine conflict, boosting investor confidence.
3. March 24, 2020 (+6.2%): Governments and central banks worldwide announced substantial fiscal and monetary stimulus packages to counteract the economic impact of the COVID-19 pandemic, leading to a market surge.
4. March 17, 2020 (+6.1%): Investors reacted positively to coordinated efforts by central banks to provide liquidity and support financial markets during the early stages of the COVID-19 crisis.
5. April 7, 2020 (+4.1%): Early signs of flattening COVID-19 infection curves in some countries raised hopes for economic recovery, prompting market gains.
6. February 4, 2019 (+3.7%): Discussions between the Romanian central bank governor and the finance minister hinted at potential collaboration and a softening or removal of the bank asset tax.
7. November 9, 2020 (+3.6%): A rally followed Pfizer and BioNTech's announcement of successful interim results for their COVID-19 vaccine, fuelling optimism for a return to normalcy and boosting markets globally.
8. March 2, 2020 (+3.6%): Anticipation of central bank interventions to mitigate the economic impact of COVID-19 led to increased investor confidence.
9. January 21, 2016 (+3.3%): Stabilizing oil prices and positive global economic data contributed to a market rebound. Gold also rose 3.6% as investors sought safety during a volatile start to the year.
10. May 28, 2019 (+3.2%): Investors anticipated the repeal of Emergency Ordinance 114, which had negatively impacted the market earlier. Banking and energy stocks, that were primarily impacted by the Emergency Ordinance, rebounded as hopes grew for legislative changes or new elections.
11. December 18, 2014 (+3.1%): The U.S. Federal Reserve's commitment to patient interest rate policies reassured global investors. Additionally, the European Parliament approved the EU budget for 2015 and amendments to the 2014 budget.
12. August 25, 2015 (+3.0%): Markets rebounded after a sharp global sell-off due to concerns over China's economy. European indices closed higher after significant declines the day before.
13. January 3, 2023 (+3.0%): The first trading day of the year marked the best start for BVB since 2013, as investors began the year with optimism for a positive evolution.
14. December 6, 2024 (+3.0%): Romania's top court annulled the first round of the 2024 presidential election due to allegations of Russian interference. The decision, which prevented the scheduled runoff, heightened political uncertainty but also brought hope for electoral fairness, influencing investor sentiment positively.
15. July 5, 2023 (+2.9%): Gains were driven by the successful conclusion of Hidroelectrica's IPO at a price of 104 lei per share, boosting investor sentiment.
16. June 28, 2016 (+2.8%): Markets rallied following reassuring statements from European leaders after Brexit. The European Parliament called for the immediate activation of Britain's exit procedure, while the UK government delayed triggering Article 50.
17. April 10, 2020 (+2.7%): Continued optimism about recovery efforts as countries prepared phased re-openings during the pandemic, supporting market gains.
18. July 5, 2017 (+2.7%): Stocks recovered after heightened volatility caused by statements about the potential dismantling of Romania's Pillar II pension system, as investors resumed buying.
19. March 11, 2022 (+2.7%): Markets rebounded amid hopes for progress in peace talks between Russia and Ukraine, boosting investor confidence.
20. January 4, 2019 (+2.6%): Global stocks surged, supported by solid employment data, trade negotiations between the U.S. and China, and promises from Federal Reserve Chairman Jerome Powell to be patient and mindful of risks.