XTR – The Index

All the talk of recession and sentiment negativity pushed us back to the contrarian side forcing us to look at Romanian market valuations and how markets should evolve from here. Well we see this as the start of new restructuring for the local markets.
Romanian market has a 14 year history. And despite all roadblocks the market will push to higher growth and development. Even if we move ahead to the global GDP to Market Capitalization ratio of 0.76, Romanian Equity market capitalization can easily grow (current 18 billion euro) by a multiple of 3 in the next few years. This brings forward a strong need for Index based products viz. derivatives and funds. Specially owing to the increasing market risk brought by the increasing volumes and lack of proper market benchmarks and risk management tools.
And it’s only now that we are witnessing a proper global representation of broad sectors in Romania. Without proper representation of the total economy, the market lacked proper price discovery, leading to shallow secondary market. And because of the archaic Index construction and no Index maintenance techniques the market today has a big gap between need and availability of good Indices and Indices based financial instruments.
An Index is used not only as a market proxy but also for hedging price risk, increasing institutional volumes, price discovery and international visibility. The list of advantages is long. We present to you the Orpheus XTR 21, a 21 stock Index for ROMANIA. This index will be regularly maintained. The index will also work as a model portfolio which will be disseminated on an intra day and regular basis.
For creating the Index we had to tackle many emerging market problems viz. illiquidity, bad data, under represented broad sectors, low priced stocks, lack of data vendors with accurate data. Rather we have been guiding vendor services regarding price adjustments and rectification of data errors, closing price calculations, lack of adjustment, non standardized prices, skew in distribution and size of company and related market capitalization, checkered regulatory procedures, lack of classification based on International standards etc. were some of the other problems we faced.
Under representation of sectors is still an important issue. The very reason every new initial offer should improve the situation. We also had to keep in mind the plan ahead with scalability of XTR to sectoral Indices, style Indices and ETFs. Even the popularity of the current Indices had to be kept in mind. We made statistical tests for all the available indices, benchmarking our construction process with European and Australian cases.
In conclusion, with the launch of the Utility major Transgas, the Romanian capital markets move a step closer to reach a critical mass, gain market momentum, increase liquidity & price discovery, and growth over negativity that we see today.