SIFs position at Bucharest stock exchange under the influence 2007-2009 financial crisis.

Author:Gavriletea, Marius
Position:Specialised Investment Fund - Report
 
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  1. INTRODUCTION

    The financial crisis of 2007-2009 had an important impact on financial markets all over the world; some aspects of this impact on Eastern European equity markets were highlighted by Gallego et al. (2010) and Johansson (2010).

    Bucharest Stock Exchange (BVB1 from now on) was also hit by the financial crisis propagation, as data from table 1 show:

    --the oldest BVB indices (BET and BET-C registered a sharp decrease of about 70% during 2008 and while a recovery was registered in 2009, thus for 2010 the return was a modest one compared with the period 2000-2007, while 2011 ended with negative returns;

    --PER and M/B ratio also indicate an important decrease in Romanian share prices; the evolution was confirmed also by the increase in DIVY, usually at modest level.

    Two previous studies Pop et al. (2010) and Pop, Vamos and Craciun (2010) highlighted the peculiar situation at BVB, where a number of 5 closed-end funds, called Financial Investment Companies (in Romanian: Societati de Investitii Financiare or SIFs (2)) have a dominant position and some analysis suggest they are influencing the evolution of BVB main indices, while not being part of their portfolios.

    The present paper will try to investigate if the financial crisis of 2007-2009 had an impact on SIFs position at BVB or not.

  2. THE 2007-2009 FINANCIAL CRISIS INFLUENCE ON SIFs

    The first element taken into consideration was SIFs position from market capitalization point of view. As table 2 shows, while between 2000 and 2007 SIFs represented, in average, 11% of BVB capitalization, the sharp decrease in SIFs prices induced by the crisis triggered also an important decrease in capitalization; for 4 consecutive years, since 2008, SIFs represented less than 5% of BVB capitalization, an important decrease in their position compared with 2005-2007 period.

    The following table 3 presents the SIFs performances using the (annual) return, PER and DIVY. M/B ratio was not available for SIFs for the entire period 2000-2007 and was not included among the surveyed ratios.

    As it can be observed, the year 2008 was a poor one for SIFs; 4 of these closed-end funds registered a decrease of over 80% and only one manage to decrease less, with about 73%. The 2008 evolution was similar with BVB other indices: BET and BET-C3, but SIFs experienced a more important drop in their return than the combined remaining equities at BVB.

    During 2009, SIFs also registered a recovery, as the entire BVB did (see table 1); however, the amplitude of SIFs recovered returns is significantly higher for 4 of them; the only exception is represented by SIF4...

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