Tuesday, May 06, 2008
This rather sparse chart is of the benchmark BET index from Romania.
It may not be obvious on first glance but the market is down 34% from its closing high last July 24.
Romania is part of the EU but not the EMU. Today their central bank raised rates by 25 beeps, 50 was expected, to 9.75%. Inflation is pretty hot (in the eights), GDP growth is good, estimated in the fives this year but it has been on a down trend for the last couple of years and it is a deficit country.
I'm not sure how keen they are about trying to join the EMU but the mix of stats says that is probably a ways off but interestingly the currency, the leu, is up about 4% against the greenback this year but the ride to 4% has been wild.
I think Romania might be one of many countries where owning the currency as a proxy for the country might be just as good if not better than equity exposure. Romania does have that ascendancy theme that most of central and eastern Europe has and that stands to benefit a lot of the currencies (maybe it already has), also the currencies returns (ex-Turkey and maybe Hungary) may not be as lumpy as equities over the next few years.
For now there is no easy way to capture Romanian equities or the leu. Take this for a bigger macro. There will be more choices along these lines. In the next few days investors keen on Brazil will have access to the real via a Wisdom Tree fund that will trade under ticker BZF. The landscape for stocks, bonds and cash from other countries will only get bigger.
Before you read an article from Morningstar poo-poohing currency ETFs, for some people the currency might be a more suitable proxy than equity for frontier markets. Something to explore.
In looking at a few thing to write this post I gotta say I found the country looks to be beautiful. Lots of mountains, old and interesting architecture and of course it borders on the Adriatic (that is a Cheers reference and actually Romania is on the Black Sea). Anyone ever visited, is it a interesting as it appears to be?