I’ve written before how doing the opposite of what the financial institutions are doing and recommend (see here). This post is in the same vein .
The reason I think Romania has a good chance of being one of, if not the best, performing stock markets this year is that the broker I use to access Eastern European stocks informed me that it will stop service there. Earlier this year I had to transfer or sell all my Romanian shares. To me, my broker’s closing operations is a large buy signal.
The broker is ultimately owned by a large Belgian bank. It’s likely that back in their corporate headquarters the stuffy-suited managers decided that all group companies would stop offering their clients access to Romanian equities. This could likely be a very logical decision as it sounds like they have few clients trading Romania equities. My Prague-based account manager noted that I was one of four.
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However, it is also short-sighted as there are many positives. Romania has one of Europe’s fastest growing economies at 4.6% last year. The country appears to be serious about political reform. Its stock market is also one of the world’s better performing ones, having increased by close to 16% year-to-date. Despite the increase, many of its large cap stocks pay good dividends with yields north of 6%.
While logical, it still stinks. It took a long time to find a broker who provided access to most Eastern European markets and took US citizens as clients. Part of the onboarding process was flying to the Czech Republic to sign account opening forms in person. (It was actually not much of a burden – Prague in June is actually quite nice. But I’m still angry about it).
The situation reminds me of other instances where bank and financial product withdrawals and shutdowns turned into good contrarian signals. History doesn’t repeat, but it can rhyme, to paraphrase a famous quote.
Consider the following:
- Brazil – the EGShares Brazil Infrastructure ETF (BRXX) was closed and delisted at the end of October 2015. At the time headline news in Brazil was pretty abysmal. However Brazilian equities were starting to flash buy signals based on my screens. Stocks in the BRXX were the least expensive among the handful of Brazilian ETFs. Since its delisting, its top ten holdings have increased by an average of 64% in USD. Many had good dividend yields which would have likely pushed total returns closer to 70%. Not as good as the Bovespa’s 84% during the same time period, but not too shabby. (ETFs are like mutual funds that track a specific index or strategy and can be bought and sold like stocks. More information is here).
- Greece – in 2012 HSBC sold its Greek securities business. This was at the same time that I wanted to buy Greek shares, as they were trading at valuations similar to Korean stocks at the depths of the 1997/98 Asian financial crisis. The bank that I’ve had an account with for almost 30 years took away a service just when I wanted to use it. Over the next two years the headline Athex index rose by close to 200%.
- Russia – in mid-December 2014 when the Ruble was floated and Russian securities and its currency plummeted, my European broker decided to suspend dealing in Moscow listed shares. I was locked-out just when I wanted to buy. Many share prices of quality companies I earmarked to buy are since up 2-3 times in USD.
- South-East Asia – around 2001 HSBC closed and/or vastly curtailed its research operations in South-East Asia. It was during this time that many of those markets started a multi-year bull run. Since then, Indonesia’s and Thailand’s headline indexes are up by over 12x and 5x respectively in USD.
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