Romanian Coverage Universe: Growth normalising (TLV RO, BRD RO, BVB RO, FP RO, SNN RO, SNP RO, SNG RO, COTE RO, EL RO, TEL RO, TGN RO , M RO, DIGI RO, SIF1 RO, SIF2 RO, SIF3 RO, SIF4 RO, SIF5 RO)

After a decent correction in 2H17, driven by increased concerns about higher inflation and risk free rates, and against the background of heightened political noise, the Romanian market has had a good start to 2018. The economy seems to be moving back onto a more balanced growth path, with GDP growth estimated at 4.5% and disposable income at 6%. Even though some imbalances remain (the budget deficit likely to exceed 3%) the low starting point for most of the indicators (public debt-to-GDP below 40%, real estate prices still at very low levels, loan growth at just 5%) are moderating the risks. In the meantime, listed companies are accelerating their growth through acquisitions and investments, while still paying some of the highest dividends in the region. The discounted valuations (MSCI Romania trading at a 1Y FWD P/E of 8.8 vs. MSCI Frontier average of 13.1x or CEE average of 11.9x) can be partly justified by a higher cost of equity (already incorporated in our models) but we believe that, in many of the cases, the negatives are priced in and we thus see several buying opportunities in the market. The sectors present on the exchange offer both access to the economic growth and eventual protection in case of a downturn.