Romania faces crucial presidential elections that will dictate its course for the next five years. These are coming in a macro environment with geopolitical tensions, conflicts and a trade war that is affecting supply chains, creating global uncertainty. In this difficult global environment, Romanians are in the middle of an even more complicated local one with a ”black swan” potential, writes eToro analyst for Romania, Bogdan Maioreanu. .
The uncertainty that the Sunday presidential elections bring is deeply influencing the Bucharest Stock Exchange, the EUR/RON exchange rate and the interest rates. The BET index lost 3.8% in a week, currently being at -1.42% from the beginning of the year.
After gravitating around the value of 4.97 for most of the past two years, the EUR RON exchange rate quoted by the National Bank of Romania climbed to a maximum of 5.12 last Thursday, to correct a bit on Friday to 5.11.
The three-month ROBOR interest rate also climbed last week from 5.9% to 7.31%. A higher interest rate and higher exchange rate has the potential, at least for a short while, to increase yearly inflation that currently stands at 4.9%, the largest in the EU.
For investors, it is unclear what Romania’s direction will take after the elections and how this will influence the economy, which is battling the highest budgetary deficit in the EU. In 2024, it was 9.3% of GDP, much higher than the next highest deficit, which was Poland at 6.6% and almost three times the EU average of 3.2%. The result of these elections might bring clarifications but also some changes and a possible political crisis whose effects are highly unpredictable.
These types of movements in the exchange and the interest rates are showing investors’ poor trust in the Romanian economy. It is a reality that was shown by the eToro Retail Investors Beat survey in all the surveys in the past two years. When asked at the end of March how confident they feel about the state of the local economy, 66% of Romanian retail investors say that they are not confident. Indeed, since 2023, the proportion of investors who say they are confident in the Romanian economy has never been higher than 38%. When the same question was asked about the global economy, 55% of the Romanian investors showed their distrust. Despite this situation, 77% of the investors are confident about their job security and 68% are confident about their income and living standards.
When it comes to their portfolios, 81% of the polled Romanian investors have confidence in their investment choices. The global situation created some changes in their asset exposure. If at the end of last year 58% of investors had exposure to Europe, at the end of March this year, this percentage increased to 68%. Meanwhile, the exposure on the US region decreased from 37% to 35% and the one on China from 6% to 5%.
As for the external risks for their portfolios, a possible global economic recession is the top concern for the Romanian retail investors. About 26% of respondents consider it the main external risk for their investments, followed by inflation (23%) and the Romanian economy (18%). While the percentage of investors worrying about the global economy’s status remained unchanged from last quarter, the one of investors worrying about inflation decreased from 25% in Q4 to 23% in Q1. Meanwhile, the percentage of investors who see an international conflict as the main risk for their portfolio increased from 14% to 16%.
Half of Romanian retail investors have local stocks in their portfolios, 36% have foreign equities, 53% have a form of crypto assets, while almost three-quarters have cash, including savings accounts, shows the latest eToro Retail Investors Beat survey. The current situation in Romania, but also the global one, might bring black swans to the markets, but also opportunities to the investors. While there is no guarantee for future behavior and results, history has shown that regardless of the color of the ”swans”, the global stock markets found the strength to rebound.
“Romanians face a historic choice—Putin or America”- seven ex-US Ambassadors tell Romanians
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