OTP Asset Management launches „Outlook 2020”, the analysis of the economic evolution of the Romanian market in the international context

OTP Asset Management Romania launches the market analysis “Outlook 2020”, at its IV edition, presenting the global and local economic retrospective for 2019 and the portfolio managers’ expectations regarding the investment opportunities and macroeconomic perspectives for 2020 .

The central ideas highlighted regarding the evolution of the financial markets Outlook 2020 are:

• We will avoid recession at global level this year;
• The relaxation of the monetary policy of the central banks will continue throughout 2020;
• The economic growth in Romania will slowdown up to 2.7% in 2020;
• Inflation in Romania will return to a level of 3% during 2020;
• The credibility and the success of the fiscal consolidation will be able to determine
• if the pressure on the EUR / RON exchange rate and on the yield curve will maintain in the future;
• We are still optimistic regarding the evolution of the bonds denominated in EUR and USD, as well as regarding the evolution of the Romanian shares;
• Regulated automatic saving, the long-term solution that can reduce risks and optimize capital increases.

In 2020, we expect a further slowdown in the global economy, but with no reasons to indicate a global recession.

Recent developments suggest that it is possible to see some of the uncertainty that caused the decline in 2019 to be eliminated.

The possibility of the UK’s disorderly departure from the European Union, through a “tough” Brexit, has dropped significantly after Prime Minister Boris Johnson’s agreement with the EU and the Conservatives’ decisive victory in the UK parliamentary elections. In addition, there was some trade enhancement in the form of a phase 1 trade agreement between China and the US, although here we cannot say that the dangers are completely avoided.

In 2019, there was a marking change in the policies of the European Central Bank towards a more relaxed direction, which is unlikely to change in the near future. Inflation is still far below the target, both in the US and in the Eurozone. The notable relaxation of the monetary policies of the central banks in 2019 will continue throughout 2020. This fact supports the global economic growth by reducing the loan costs, both for the private sector and for the governments.

However, in 2020, new sources of political uncertainty will emerge, if we look at the US presidential election, where the result is far from certain.

It is important to say that the largest economy in the world, the US, has experienced the longest expansion in recorded economic history since July 2019, when it exceeded the 120-month expansion from 1991-2001.

One of the reasons why the expansion of the US economy has reached this respectable age is the apparent lack of excess for consumption and investment that has characterized most previous periods of the business cycle. The Euro zone was the sick human of the global economy in 2019, paradoxically, despite the fact that its private sector has the strongest balance sheet among the big economies. In 2020, we expect a gradual improvement of the economic situation of the euro area.

As for Romania, we expect a slowdown in economic growth during 2020.

Romania’s economic growth could be around 2.7% in 2020, as fiscal policy is expected to tighten in line with the new government’s long-term intention to reach a 3% deficit. Lower wages and lower levels of employment in the public sector will negatively affect consumption. However, starting with September 2020, the significant increase in pensions will again start to fuel household expenses. In addition, export growth will slow down.

The consumer price index in Romania is expected to drop rapidly next year, although there are consistent risks in this regard. Under these conditions, we expect that inflation will probably return to about 3% by 2020.

In addition to already announced plans to reduce public employment, other measures are needed to reduce the deficit below 3%.

Fiscal policy has become a major risk factor for the Romanian economy, a problem that will remain on the wallpaper for the next time period. The credibility and success of the fiscal consolidation will determine whether the pressure on the EUR / RON exchange rate and the yield curve will continue in the future.

If fiscal results disappoint, pressures could rise rapidly. It is also important to note that the Romanian economy in its current form is vulnerable to negative external shocks. For example, a cyclical slowdown in the European economy could lead to capital outflows, a further weakening of the leu, forcing the government and the NBR to tighten conditions, pushing economic growth to zero or even below zero.

The year 2019 was an exceptional one for all asset classes. Whether we are talking about the price of gold and commodities, bond indices (in RON, EUR or USD, sovereign or corporate) or local and international actions indices, all of them have registered sustained increases.

For 2020, we remain positive, both on US dollar and EUR denominated bonds. We believe that corporate bonds and those of emerging countries – such as Romania – have a higher earning potential over the medium term than the most secure bonds (rating A, AA, AAA). We also expect major international stock indexes to go up throughout the year, but we expect high volatility.
Regarding the Romanian market, we consider that despite the growth of 2019, the Romanian shares are still cheap in terms of the level of financial indicators. In Romania, after an increase of the BET index of over 30% in 2019, the P / E ratio (Price to Earnings Ratio) did not even exceed its multi-annual average. Thus, we can say that this appreciation of the price of the Romanian shares of the last year is supported by the much higher profits of these companies.

Whenever we talk about estimates on the evolution of financial markets we have to take into account that there are a number of significant risks that can lead to major changes in the markets. From our point of view, we have identified a number of significant risks that may affect the evolution of financial markets:

• Trade war and global economic growth;
• Political developments in the US and Europe (US presidential elections);
• Continuous growth of social inequality and populist movements;
• Armed conflicts and frozen conflicts.

Given the current context, we believe that the best approach for clients is that of recurrent long-term savings / investment through investment funds.

We believe that investment funds are a viable long-term savings solution and will continue to deliver significantly higher returns than other conventional savings products.

Present on the local market since 2008, OTP Asset Management Romania SAI S.A. ranks 6th in the list of the most important investment fund managers in Romania, by the assets under administration. The company manages a diverse range of investment funds, offering the opportunity to access equity investments through OTP AvantisRO, OTP Expert, OTP Global Mix, OTP Real Estate & Construction, OTP Premium Return and OTP Euro Premium Return, but also investments in government bonds and bonds, through OTP Bonds, OTP Euro Bond, OTP Dollar Bond and OTP ComodisRO. Currently, the company serves over 8350 investors, from the retail segment and clients legal entities, in ten open investment funds.  

OTP Bank Romania, subsidiary of OTP Group, is an integrated and self-funded provider of financial services. With an approach based on responsibility, commitment and professionalism, OTP Bank Romania understands its clients’ needs and the current market context, being a reliable partner in the area of financial services. The bank ranks 9th by assets in the top of Romanian banking players, as of December 2019.

OTP Group has grown into a dominant player in the Central-Eastern Europe market and is regarded as a major banking group even on European scale. The community of around 36 thousand OTP staff serves over 18.5 million customers in 12 countries daily.