The principle according to which one keeps his savings only in deposits or current accounts, not to say in “money stashed under the mattress” isn’t healthy as regards the value added to the owner’s financial wealth, and it is best to invest a little in several instruments, stock, mutual funds, pension funds included, President of the Bucharest Stock Exchange (BVB) Lucian Anghel told the audience at the Individual Investors Forum on Saturday.
“Let us not forget that there’s also a Pillar III pension scheme. The state offers us, but doesn’t stuff it in our pocket, a tax deduction of 400 euro a year, and Pillar III is obviously our money. No one can touch it. Do we put this tax deductibility to work?” Anghel told the participants to the forum.
The BVB President went on to recommend them to “put the eggs in several baskets” and invest in a diversified array of instruments.
He also cited the paradoxical outcomes of a survey that found that despite being convinced of the benefits of saving, the Romanians’ top preference is to stash their money under the mattress or keep it in bank current accounts. He also cautioned that with inflation topping 5 percent, the retail investors should seek such investments that have produced in the past 12 months a return that is at least equal to inflation.
The last 18 months, he said, have been perhaps the most intense in terms of BVB listings of private companies and of bond issues.
“Never before – and I have been working in the financial – banking sector for 20 years now – have I sensed such a desire for listing privately-owned companies on the BVB. (…) This is extraordinary for the capital market, and it has come in time, with great effort and lots of projects. I voice my conviction that this trend will not stop here. If we look at the yields, we see the average dividend was 7 pct last year, it’s 8 pct this year, considering the companies included in the main index, the BET. This is basically a very important buffer,” Anghel said, making the case for investments as a safety net, as compared to deposits. “Investment evidently carries a certain risk that is higher than that of a deposit, but there is also hope for a substantial return,” Lucian Anghel said.
The BVB official explained that the BVB return in the last three years was 50 pct, well above inflation.
“If we take a look, it’s 50 percent in three years, far above inflation or any other instrument you would want to compare with. This return is also based on this principle: ‘Don’t put all the eggs in the same basket’ and don’t rely on one company alone; I think it is a healthy principle, especially for those who are at the beginning of their investment journey. Had the participants in the previous forums listened to the experts who were on stage, they would have doubled their money, but since 2013 this would be more than double. This also includes the dividends, the BET-TR is almost 125 percent. The Budapest, Prague, Warsaw stock exchanges didn’t perform bad either, they are all in the green considering a longer timeframe,” he said.
Lucian Anghel added that the real estate investments would not have produced an equally high return.
He went on to say that BVB performed better than other regional exchanges because of the substantial underlying economic growth, explaining that it’s normal for Romania’s economy to grow at a faster pace than that of other EU countries, despite the country’s trailing in terms of GDP per capita. “It’s because of the lower basic level. The reason why investors are placing their stakes on Romania is also the basic effect and the potential for economic growth, not just the dividends, which are however an important element for retail investors,” the economist said.
Anghel also referred to volatility, stating that apart from fluctuations and decreases, it can bring along opportunities such as buying at a low price stakes in companies that are not affected at their core.
Lucian Anghel said that although BVB has this year faced the biggest correction in the last decade, the return on the Bucharest market has exceeded 11 percent, specifically 11.54 percent dividends included, and that returns in the medium and long term were positive.
The Bucharest Stock Exchange organized on Saturday the seventh edition of the Individual Investors Forum, a landmark event with tradition on the capital market.
The event was opened by BVB President Lucian Anghel and BVB CEO Adrian Tanase.
The forum included an interactive panel called “Lifetime Lessons in Investments” that was slated to discuss the rise in value from the perspective of an angel business, a retail investor and an institutional investor, all spiced with the results of a PwC survey.
The section “Success Stories of BVB-listed Companies” had presentations scheduled of MedLife and Digi Communications N.V., which are both listed on BVB.
The forum also included a session of analyses for beginner and advanced investors.
CEO: 15 bn euro stashed in Romania overnight deposits, but capital market returns are higher
Fifteen billion euro are stashed in Romania’s overnight deposits, which clearly speaks of the preference for bank deposits because of the comfort they offer, but we must understand that capital markets, the Bucharest Stock Exchange (BVB) respectively, produce higher returns in the long run, BVB CEO Adrian Tanase told the Individual Investors Forum on Saturday.
“We have some statistics on bank deposits in Romania. We know that 15 billion euro are stashed exclusively in overnight deposits. People obviously prefer bank deposits due to the ease offered by this type of instrument. Yet we must somehow activate a different mindset, let the people know that the capital markets, the Bucharest Stock Exchange produce superior returns in the long run. We must let these convictions put down roots, because if this were not so there would be no sense in having stock exchanges or capital markets. There would be only banking systems. That’s exactly what a capital market provides: the possibility to generate returns superior to bank deposits, but of course, such returns come provided that investments are made with a certain discipline,” Tanase explained.
He pointed out that there is an issue with Romania’s capital market, as the retail community is not very developed, and urged the improvement of financial education so as to broaden their vision beyond banking deposits. “There are also shares and bonds. We must understand that these are simple, easy to understand instruments, and we must also know that from the standpoint of the financial planning theory, it’s mandatory that we place our savings in such instruments,” Adrian Tanase explained.
The BVB CEO also said the Stock Exchange envisages developing a derivatives market to help improve investment strategies.