Ministerul Educatiei Republicii Moldova

Academia de Studii Economice din Moldova

Facultatea “Relatii economice Internationale”
Catedra “Relatii economice Internationale”

Proiectul REI
Tema: Piata de capital si investitiile straine in
Republica Moldova. Studiu de caz

Autor: Munteanu Corneliu

Student la anul III
Grupa EMREI – 274
Conducator stiintific:
Harcenco Dorina

Chisinau, 2009

Plan:
Chapter 1. Introduction. Theoretical approaches to the concept of investment and
capital markets
Chapter 2. International capital market
2.1 Case study - Romania
Chapter 3. Cumulative highlights in the analysis of foreign investments on
Moldova’s capital market:
3.1 Volume of investments major actors
3.2 Major problem - Liquidity
Conclusion
Annexes
References

Chapter I
 Theoretical approaches to the concept of investment and capital
markets
Capital Market - the market where investment funds (bonds, equities, mortgages) are traded;
- the system relations and mechanisms by which is realized the transfer of funds from
those who have surplus of capital to those who need capital.
These definitions do not cover all capital market activities, given the place and role of capital
market as a whole, as there may be a strict division between capital market and financial market. The
two concepts are interrelated, according to the regulations of each country can delineate two ways of
defining the market (capital and financial):

> European approach based on the banking system, banks (as specific carriers) are present on
both types of markets and the structure is found next to the capital market:
• money market -> short to medium capital market;
• mortgage market -> capital attracted in particular to build homes
• financial markets -> for the issue, placement and trading of long-term capital securities,
Money market is the market where is traded short and medium term capital, as represented by the
interbank market and negotiable debt securities.
Mortgage market is specific to the housing finance, which acts as bodies which provide loans real
estate credit, cash funds refinancing creditor banks and mortgage banks .
The financial market is long-term capital market, where are issued and traded securities that serve as
support for the exchange of equity. The financial market is what to buy and sell financial assets, without
changing their nature

> Anglo-Saxon approach based on the free expression of supply and demand in each market
type basis and presenting tools, operators and institutions specific regulation and supervision and the
financial market includes:
■ Capital market -> for medium and long-term capital;
■ Money Market -> to attract capital and placed in the short term.
In fact, the institutional organization of markets is given by three elements:
a) tools used for each market,
b) specific operators
c) market mechanism with its specific rules.
Unlike money markets, where instruments are negotiated for short-term period; capital market is
characterized by medium and long term transactions with specific securities: stocks, bonds, treasury bills
and derivatives based on them - options contracts, futures (which experienced a spectacular development
in recent years).
 Elements of the capital market are:
• Subject is the synonym of securities on Anglo-Saxon capital market;
• Operators are intermediaries juridical persons (securities firms in Romania) or individuals -
agents of securities, staff intermediaries that grant employees stock market,
• Specialists (market makers) and in some markets all three categories of employees as
freelancers;
• Operations that in logical sequence form a set called transaction, investment;
• Venue (place) consists of the means of communication between operations (Interdealer
market), between the latter and an institution called the stock market.
The capital market has two components in terms of the type of instruments can be traded:
The primary market -> the market where securities are issued and traded primary first, participants are
issuers and investors as a seller in the buyer
The secondary market -> is intended to concentrate supply and demand thereof. The market where
securities are traded primary already in use, are issued and traded securities side and where the
participants are investors in double as sellers and buyers.
The primary market is that segment of the market that are issued and sold or distributed to the
first securities holders. The primary market is therefore intended to transform short-term financial assets
in available long-term capital. Certainly a direct negotiation between seller and buyer is quite hard and
sometimes ineffective. The company that issue and the investor must have a coincidence of financial
needs (pay, maturity, liquidity risk). Therefore, the best way to call a financial intermediary that is able
to harmonize the needs of both parties.
The process of transformation of primary securities in the secondary securities is called
mediation. All financial institutions practice mediation creating secondary securities with different
financial characteristics to attract new customers and better meet their needs.
The secondary market provides, through the exchange of securities and OTC markets, both
primary market functioning and liquidity and mobility economies. Investors are able to negotiate at any
time their portfolio or buy new securities. The secondary market supply concentrates derived supply and
demand, which occurs when the securities market was established.
The good primary market functioning depends also on the credibility, attractiveness and efficiency of
the secondary market. Through the secondary market, a negotiation one, the financial assets owners have the
possibility of converting it in cash money. Few persons would invest in securities without the certitude that
could transform them in money, at the market price, selling on the stock market. The stock exchange inspires
trust to participants, confers legality to operations and trust to obtain the best price at the moment. The stock
exchange credibility is sustained also by regulations and assumed deontology rules, in the last years insisting
on the ethic dimension of the capital market.1
An important role in the financial market is a securities brokerage company that assumes: - - ----
- distributing issued securities;
- carried out trade with securities, namely, the sale of securities in the name and/or on their own;
- make trade in securities on behalf of third parties,
Brokerage firms may specialize in one or more activities
- some acts primarily on the primary market, providing distribution and placement of new issues
- other acts only on the secondary market and are considered firms' broker / dealer.
Secondary market functions are:
■ provide liquidity and mobility of savings invested;
■ response to the need for creating a formal and organized for owners who want recover funds invested
in securities before maturity (life of action is equal to the life of the issuer );
■ ongoing assessment of the securities listed
■ investor protection, achieved through transparency, regulation and market surveillance;
Capital market actors are:
■ public and private issuers,
■ individual investors and institutional
■ intermediaries - agents operating securities through securities companies, w

Chapter II
International capital market
Global capital market developments in 2002-2006 can be characterized by a constant tendency to
return after stagnation in 2001. Stock indices registered steady growth trend throughout the year, and the
major stock exchanges scored performance, exceeding the results of the last decade.
 Year 2006 is characterized as an exceptional year in global capital market developments. During
the respective year, the SP Global 1200 index, calculated by the financial rating agency Standard &
Poor's, grew by 17%, the Dow Jones Global Exchange index has increased by about 77%, registering a
rise of approx. 600% since its appearance in 2000.
Nasdaq Stock Exchange grew by 9%, the stock exchange in Toronto - 13%, the stock exchange
in Mexico City - 40%. If we refer to European trading platforms find that the stock exchange in
Frankfurt rose by approx. 16%, Euronext Paris - almost 12%, the stock exchange in Madrid - with 28%.
The performance of the Hong Kong Stock Exchange exceeded the previous year with similar indicators
about. 26%, the stock exchange in Shanghai - with 86% and the Bombay Stock Exchange - by 48%. On
the basis of such significant growth and the Tokyo Stock Exchange rose by only 1.2%. All these results
confirm the upward trends of world capital market.

Capital market development in Romania in 2006 can be characterized by seeking strong

performance of shares listed on the Bucharest Stock Exchange. The BET index, which expresses the
average increase of the share prices listed on the Bucharest Stock Exchange has risen 22% in 2006, the
index ROTX - 24%, BET-C - 28%. Trading in shares made on BSE in 2006 reached 9.8 billion. USD,
exceeding by more than 2 billion. RON transactions from the previous year. Market capitalization
reached 73, 3 billion USD in comparison to 56.1 billion USD in 2005.
Acquiring NATO membership (March 2004) and Romania's EU accession (2007), led to the
raising of the Romanian investment environment and increase its attractiveness from the nonresidents. In
figures this can be seen during 2003-2006 where the total value of foreign capital inflows increased 3.87
times. Cumulative total direct foreign investment during 1991-2005 was more than 13.19 billion euros
and in the period 2000-June 2006 the cumulative inflows of foreign capital on the stock exchange were
3.082 billion euros. Moreover, in 2004, the year of integration into NATO, the Americans were most
interested non-residents of securities listed on the Romanian stock exchange approximately 25.60% of
total foreign purchases. A graph of the evolution of the amounts entering and leaving the capital market
in Romania, another that reflects the evolution of the purchases and sales nonresidents during 2000-June
2006, according to records NSC (National Securities Commission).

Training and development of capital market in Romania and the creation of organized forms of it
(the Bucharest Stock Exchange and the Stock Exchange company and Rasdaq) are essential components
of restructuring the economy in the neighboring country. The processes of formation and development
of capital markets in Romania are inextricably linked to the privatization of state owned enterprises, in
various fields of activity: industry, agriculture, commerce, transportation, food stuffs, etc.
In the last five years, if we only report the buying/selling transactions recorded on issuers listed
on the Bucharest Stock Exchange, both weights purchases of residents in the total value of transactions
on the BSE and the sales are much lower weights than buying and selling registered by nonresidents. In
2005, the share of total purchases made by residents was 81.21% and the share of foreigners in total
sales of 18.79%, in Poland, for example, according to an annual report of the Warsaw Stock Exchange,
foreigners in this procurement market representing about 40%. The following tables present a detailed
structure of the value of transactions on BSE (buying and selling) the resident / nonresident:
 Lately, Romania has benefited from economic growth highlighted a further reduction of
inflation, to accelerate privatization and restructuring of the economy, obtaining in 2004 from the
European Commission report - The status of functional market economy. In 2005, Romania improved
credit rating from stable to positive, recognized by the agency Standard & Poor '. Other ratings were
obtained: in 2004 from Fitch, which improved by two positions the country risk of long-term credits on
major currencies and Moody's upgrades rating to Ba1 country. Another step forward was made to
change the system of taxation of 25% income tax for corporate income tax and 18-40% of individuals at
a fixed tax of 16%.
Strictly related to volumes, in the beginning of the year 2006 the interest of foreign investors for
the Romanian stock exchange fell gradually, value of total purchases made by nonresidents falling from
month to month. Thus, from a value of their 521 million USD in January comes to be only 189 million
USD in June. If the value of purchases with shares fell in January 2006 with 14.5%, by 44.7% in
March / February, to 47.43% in April / March, increased by 70% in May / April and decreased again by
14.1% in June / May, not the same thing we have in sales whose value is maintained constant in the first
three months of the year following it then to fall sharply in April is about 2, 8 times smaller.
Regarding the value of purchases made by foreigners in the countries of residence, in the first
half of 2006 in descending order to highlight top countries like Austria, USA, Netherlands and United
Kingdom, each owning a share of over 10% of total purchases made. With a rate of 16.1% is maintained
Austria in 2006 as the country with the largest volume of purchases, in 2005 their share of total
purchases made by Austrians were approximately 19%. Even if the Austrians in 2006 retains its place in
the charts in terms of purchases are still that suffered investors from America, Holland and Great
Britain. The value of purchases for U.S. residents first half of 2006 is about USD 240 million while
those made throughout the year 2005 were $ 362 million USD, which means that American investment
in the Romanian securities amounted in 2006 approximately 66 % of those made throughout the year
2005, while purchases made by the Austrians in 2006 represented only 45%. U.S. investors have held
the top purchases in 2004, the share of investments made by Americans that year was over 25%. An
experienced and dynamic sound purchases made by investors from Netherlands and United Kingdom in
early 2006 they totaling about 75% and 72% of the total registered in 2005.
 Nonresidents were mainly directed by the issuer of the banking, petroleum and pharmaceutical
sectors owning the major share in the total purchases made in early 2006. Thus, selected fields by the
value represents about 77% of all purchases made by nonresidents in January, 84% in February, 65% in
March, 75% in April, 65% in May and all of 65 % in June.

The charts show the situation of the sales in the period 2005-2006. A big change we notice for
the sellers of Cyprus, who held a share of over 19.5% of all sales made by foreigners in 2005 and 7.7%
in 2006. U.S. residents have preserved an almost equal share. The UK investors were more active (17.2)
in 2006, the share of total sales was only 6% in 2005.
Romania after entering in EU
Latest achievement of the Romania – joining European Union, changed in the positive way the
most important macroeconomic indicators. Achieving economic growth, reducing inflation,
restructuring the economy, ratings given by the best known agencies had a good influence on inflows of
foreign capital, registering significant inputs of foreign capital if we report both on inflows from non-
residents on the Romanian stock exchange and the total direct foreign investment.
It should also be recognized that with EU accession, Romania is a country not forgotten at the
end of the world, and by liberalizing the market; its capital market gates are permanently open to all
investors. Even if foreign investors have withdrawn in part on the local stock market are still shone their
eyes and to our country's economy, an economy with real possibilities to develop, the condition of the
proper administration of all sectors.
 Fig. 1
In the diagram we notice that the year 2007 (year of EU joining), for Romania was a successful
year (fig. 1) but immediately after (2008) came the world financial crisis and official stock exchange
index, BET, calculated from the price changes of 10 shares listed on the regulated market, lost 70.47%
in value. Nothing and nobody couldn’t stop the influence of to international financial crisis on Romanian
capital market (mortgage problems, and rapidly rising value of real estate and financial assets). All these
factors decreased the value of all the steep grades of risky assets, traded in all the world's financial
markets being directly affected. Other effects of the crisis manifested in most financial markets have
been related to the decrease liquidity, lending and restricting drastic variations in interest rates and
differences of course.

After a steep drop of about 25% in the first part of January and February, the BET index has
evolved relatively stable until May (and trying a slight increase in the last part of this range). Such an
evolution, rather similar to that of previous years has caused confusion among investors and a good part
of them felt that international developments will not affect the domestic capital market in a very large
extent. Such an assumption was invalidated when, between June-July, the index lost 30% of value.
Although later registered a slight recovery actions (17% for BET), decreased from mid of september was
a serious alarm signal. This was confirmed later, when shares fell continuously during the period August
to October, and BET lost 40% of value. Year minimum was reached on October 27, when the index
registered a value of 2596.30 points - a figure which has not been seen by investors in February 2004.
Bucharest Stock Exchange suspended trading in shares due to the very large declines in four days of
October, the month when the BET index recorded the second biggest drop in its history: -32.7% (the
largest monthly drop was recorded in August 1998: - 35.63%). Continuing the trend turmoil of the year
in the coming weeks the index has gained 30%, has lost a good portion of the gain, and then developed
for approximately four weeks with an unusual lack of volatility, by the end of trading. The BET index
reached its historical maximum of 24 July 2007 to 10,813.59 points. Compared to this record, the index
on the last trading day of 2008 represents a decrease of 73.17%. In late 2008, BET is in decline over 17
months - the longest period of continuous decrease of the index since its launch in 1997. Other
indicators of exchange officials, BET-C (which takes into account all shares listed than those of the SIF)
and BET-FI (which takes into account the actions of SIF) developed similar to BET, recording large
falls: -70.34% for BET-C and -84.05% for BET-FI.
The only positive aspect related to capital market, if we can identify one, is that the steep
declines in 2008 have left the shares traded on the capital market in Romania at very low evaluations.
This may represent a good buying opportunity for investors with a view to return to trend upward. The
main variable is the exact timing of the return. In terms of uncertainty that keeps the financial markets
and world economies, risks remain, but more higher than in previous years. Correspondingly, in 2009
will continue the tendency of investors to shift to safer assets, by increasing interest in fixed income
instruments (including recently introduced bonds) for investment funds in bonds and bank deposits.
Crisis and high amplitude decreases as those in 2008, rarely meet, but they create opportunities for
medium and long term, due to low evaluations of riskier assets such as shares. Year 2009 could be the
first year that the opportunities generated by the recent crisis begin to be realized. As usual, however,
capital market offers no guarantees, only opportunities.
Conclusion:
Alain Simon’s observation is best suited in our economic context: “The fact that the markets need
private persons vitally in order to reach their scope, must not make us forget that they were conceived by and
for entrepreneurs who are willing to increase their own funds, a condition for own development”.4
The capital market in Romania cannot reach perfect maturity without activating the primary
component. It is true that during the last years the Romanian companies have begun to use (shyly) the capital
market for financing their activity, this fact being suggested by the capital increase. But, capital increase is
truly relevant, from the primary market’s point of view, that of financing the economy – and evidently, for
the share company, too – but only if they were made by obtaining cash money. Unfortunately, a great part of
the capital increase lately made by Romanian companies had their origin in a patrimony re-evaluation, which
in fact, did not bring them additional funds.
Attracting on stock market big successful Romanian companies is possible and can activate the
transactions. But, entering and staying on the secondary capital market must be correlated with the creation
of attractively conditions. The companies must notice an interest for going public and being quoted on the
stock exchange; the companies didn’t entered on the capital market in its scope, or simply for increasing the
volume of transactions. For being attractive, the capital market must create for the issuers financing
opportunities more favourable than other financial institutions.

Chapter III
Cumulative highlights in the analysis of foreign investments on
Moldova’s capital market
Moldova’s capital market is underdeveloped, but we see a gradual progress. It is well funded the
observation that in developing countries we should pay the same attention to the set up and development
of an efficient capital market, in the same way in which there are preoccupations for the infrastructure or
telecommunications’ development. The impact of the stock market on the real economy is important,
because investors from the developed countries are used to watch the market’s evolution and to take into
account the information thus offered regarding the economy’s future. The symbolic values, the
securities, need a real basis for conferring economic viability; without this, the “virtuous circle” could
transform into a “vicious circle”, the capital market is disconnected to the real economy.3
In 2007 were carried out transactions of 1.2 billion lei, up from 343 million lei in the previous
year, the highest value in recent years. Maximum until now was only 480 million lei. Also, exchange
indicator EVM-Composite, which show stock average prices calculated by the “Estimator-VM” agency,
rose almost twice - from 1060 points to 1990. In calculating its initial value was the average prices of
shares of the stock market and turned into a thousand points, so each increase of 10% of exchange-
traded share prices is an increase of 100 points is an. Increase share prices twice in one year is a very,
very rapid growth, because in many countries are required decades for prices to rise twice.
The total volume of foreign investments attracted by the primary securities market during 2008
was 498.3 million lei, which was reduced by 300.8 million lei from the previous year indicator. FDI was
attracted by the constitution issue volume of 5.2 million lei and the additional issues in volume of 493.1
million lei. Compared with 2007, when a considerable interest in capital investment in securities primary
market investors returned from Spain (260.7 million lei or 32.6%), Italy (250.2 million lei or 31 , 3%)
and USA (115.6 million lei or 14.5%), in 2008 the significant participation of foreign investors through
the issue of securities is for investors in France (145.3 million lei or 29, 2%), Romania (128.6 million lei
or 25.8%) and Britain (103.3 million lei or 20.7%)

Evolution of transactions in securities by non-residents in the years 2004 - 2008 showing

prevalence purchase transactions in relation to the sale. The volume of purchase transactions in 2008
exceeded the sales volume of 227.9 million lei. Compared with 2007, the volume of purchase
transactions, decreased by 218.2 million lei. The participation of foreign investors is highlighted in
transactions with shares of commercial banks, registered 131 purchase transactions worth 269.3 million
lei and 63 sale transactions volume of 213.8 million lei. The share of transactions with shares issued by
commercial banks is 27, 0 percent of total transactions involving foreign investors in 2008.

One of the major problems of market capital market of Moldova is quite low level of liquidity
measures on the secondary market securities.
Generally speaking liquidity is the ease with which an investor can make investments in cash.
The financial basis is truly liquid when it is done with many transactions and large volumes, which
allows investors to buy or sell any of that title. Directly when he speaks of a liquid share refers to the
possibility of determining in a regulated market (stock exchange, organized OTC), the current market
value. If the current market value can’t be determined, means that there is no liquid market for this
action. The causes of poor liquidity of shares issued by companies in Moldova are many, including the
following points: lack of adequate transparency and business intelligence on companies stock, the
existence of an insufficient number of free shares in circulation, poor information on how shareholder
trading precarious financial situation of many joint stock companies, not paying dividends or paying
their small size, lack of market shares to be issued by tender public, there is much difference between
purchase price and the selling, trading mechanism we accomplished, etc.. However in the last 2 years the
market has started to show some interest from investors for shares of companies that working in
profitable sectors of the economy. This time refers specifically to foreign investors. The process started
is naturally become attractive to non-residents with Moldova closer to the EU, and the country is
creating more and more favorable conditions for capital investment. This progress involves the indicator
of utmost interest to all investors is the evolution of stock quotes of the shares. Especially the
profitability index is cautious individual actions becoming a truly worldwide movement engine market
security.
In 2007, the most liquid shares on the stock exchange by volume traded were shares of financial
sector with a share of total turnover Fellow of the 76.5%. Indeed this year bank shares were in focus of
investors, their interest is on the rise since the beginning of the period, and the price of these securities
increased dramatically. As a result, in comparison with 2006 the share of financial sector turnover
increased by approximately 30 percent.
Top liquidity action by industry by volume, MSE, 2007

In 2007, too, have increased considerably compared with 2006 volumes of shares traded
companies such as fields, FOOD AND BEVERAGE INDUSTRY, Insurance, land transport,
Woodworking, Furniture and articles of wood, AGRICULTURE and auxiliary services, wholesale trade
and retail, real estate, Publishing and printing services. It is noted, thus increasing the volume of shares
of stock or branches profitable growth prospects. It's gratifying and that the occurrence of some interest
from investors for the issuer of agriculture.
Fell last year from the same year 2006 value of shares of stock transactions such as branches,
PRODUCTION OF EQUIPMENT AND radio (including television and communications), Manufacture
of machinery and equipment, Manufacture of textiles, production of items, rubber and plastic,
Manufacture of clothing (including preparation and dyeing of fur). Here, there is the negative effect of
industry recession that prevailed in 2007 and on capital market transactions with shares in those areas. A
broad overview for 2007 data regarding stock turnover by industry is restored in the table below.
 Liquidity Analysis branches of actions seen in terms of number of stock transactions in shares by
sector designated for 2007 results that differ little liquidity analysis by volume. Thus, the top that have
the same fields as finananţele, construction, trade, transport, food and beverage. We have for 2007 and
some exceptions related to a large number of transactions 1-2 of shares in such fields as insurance,
chemical.

This, however, by far does not mean that the time investment in shares data could also affect
future profitability. It requires more detailed studies. Say it for one simple reason - most actions are data
liquid secondary market, ie very few transactions are recorded in volumes not too large. We find again
here the problem of liquidity, with a small exception for bank shares and 1-2 can be shares in the real
sector of economy. Therefore, unless the actions of the financial sector, shares representing other fields
do not predominate in top that. In particular, in this classification are present well positioned for market
shares in areas like construction, food and beverage, furniture production, light industry and production
of various apparatus, trade. Therefore, it is notable enough behavior by rational investors that is cautious
to invest in shares representing not a single industry, but the best from several fields with growth
prospects. This phenomenon is apparent in specific national economy where there is some pivotal
industries, the predominant industries with high growth potential.
In 2007 the capital market registered an impressive increase of almost two times (99.6%), giving
some very optimistic expectations for 2008. And indeed, the first 5 months of evolution of the general
price level of the stocks has maintained a strong growth trend. Since early June, this trend was reversed,
in present market trend showing a worrying decline. The most convenient tool for analysis of market
developments is the index - Composite EVM, which is calculated on the basis of all shares traded on
stock exchanges and developments which reflect all price changes. Analysis of price changes on the
capital market will be made under it. Last year, the index value increased from 1065.49 to 2126.08
points. This increase is very impressive, showing a certain interest of investors from the capital market
of Moldova.

Evoluția indicelui EVM Composite în anul 2007 Evoluția indicelui EVM Composie în anul 2008

The share prices was so high mainly caused by foreign portfolio investors who have decided to
invest in our capital market. Given that prices of most indicators Moldovan companies are below the
prices in the EU countries, they were willing to pay for the same action more than local investors, not
comparing alternative markets. Earlier this year the trend of rising prices remained unchanged, although
growth slowed. Thus the period from January to May prices rose by over 11%, which in annual
expression should be given an increase of 26.4%. Although this increase is well above the expected
growth of most macroeconomic indicators in 2008, however see a significant slowdown compared to
2007. Those happen because, most domestic companies provide a disclosure of information much lower
than commercial banks. As a result, investors are more reluctant to invest in other areas and that the
prices that agree to pay for the shares are lower. Nor should we forget and the very low liquidity of the
shares of most domestic companies - because of advanced building envelopes, even in case of offers to
purchase at realistic prices, there are always sellers. It just limits the transactions and price dynamics.
But from June onwards, the trend reversed in the capital market, registering a decline in prices, which
continue until today. The value index in this period dropped from 2376 to 2285.28 points, which is a
decrease of 3.82% in 55 days. Although the reduction is still not very high, wakes worrying trend
This trend of share prices at the Stock Exchange may have several causes. One would be that leu
appreciation of international currencies. Since the beginning of the year the leu appreciated against the
U.S. dollar by 14.55% and 14.28% against euro.

Evoluția cursului dolar / leu în anul 2008 Evoluția cursului euro / leu în anul 2008

The explanation seems quite logical - if the domestic market operating a large number of foreign
investors, keeping the price of shares in foreign exchange trading at the same level, will have to lower
the price in U.S. dollars. This may explain the evolution of market capitalization. But a long-term
analysis shows that the evolution of stock prices and exchange rates in Moldova there is ever an
unequivocal link. Long-term correlation between EVM Composite index and exchange rates is negative
- when rates decline, the index usually increases. Although during early June the things were reversed -
the correlation between exchange rates and the index changed (95% correlation between the
development index and the dollar exchange rate and 84% - the correlation between the development
index and the single currency), this is more a coincidence than a legitimate.
I think the real cause of the reversal in the market is monetary policy, promoted by National
Bank of Moldova. Because of the high inflation growth this year, was undertaken a number of measures
to sterilize the money supply. Among them, the main rule was to increase reserves of the commercial
banks kept at the National Bank. At the end of May National Bank of Moldova adopted the decision on
increasing the required reserves, which was published on May 30. Right after on the money market
began to feel an acute shortage of liquidity. Commercial banks have limited market activity and
dramatically reduced the credit traders. Also, due to increasing interest from government securities and
bank deposits, shares fell comparative attractiveness (this is particularly true for foreign investors, which
means the loan can attract foreign and place them in deposits from in November, benefiting from high
interest and appreciation of the leu). Decrease in the index began on June 3, more than a day after the
entry into force of new rules. I think in this situation, changing market trends can occur only after you
normalize the situation with liquidity in the money market and banks will be able to resume normal
activities under the capital market, and interest on deposits in RON will become smaller.
However, this situation shows that the link between financial market segments is close, and
events on one of these parts affect the whole financial market. I do not know how effective the measures
will be undertaken by the National Bank to stop the growth of consumer price index, but they were very
effective to stop the growth Fellow EVM Composite index.
Conclusion:
After Romania and Bulgaria joined the EU, many investors who previously invested in these
countries, already are looking further outside the EU. That came into focus of Moldova many investors,
both investment funds and individuals who invest their own sources. The first company that came into
their sights was Moldovan bank.
So this year we have seen large increases in share prices in most commercial banks. The banks
are very profitable to us. Last year, the value of assets at many banks has doubled. There is a lot for a
company for one year. In addition to business profitability, banks are pretty transparent, if we compare
them with other segments of the economy known little or almost nothing. Banks always make public
reports about their activities; audit firms are important, so investors may believe in their financial reports
and have access to bank information. At the same time, many new companies do not disclose
information about their work and, of course, that nobody should invest in such companies. Owners of
such companies have not yet matured enough to understand that if they have a business in constant
growth, needs to attract investors and to attract them, must be, first of all, transparent. Another
explanation is that only one year - two to complete the concentration in shareholdings - after
privatization was thousands of shareholders and after this some people have begun to focus stakes. Such
persons have recently become owners of companies and probably still are not ready psychologically to
draw someone else in business, such as significant investors. So it will be another few years until they
get used to the proprietor and will understand that if they grow - they need to attract investment.
Determinant of capital market in Moldova is that the end of last year - earlier this year, more and more
investors begin to look for placement of investments other than the banking industry. Among those who
have already begun to enjoy the new investments are companies in construction, manufacturing, food
industry.
It was tender offer of 20% in Commercial Bank Moldova-Agroindbank, Unibank and
Mobiasbanca. There have been many transactions in shares of companies for the reconstruction of roads,
but by volume can not be compared with those for banks. I believe that actions against companies for
construction of roads will increase investor’s interest, particularly because in the coming years is
expected massive investment in infrastructure. Here lately the trend appears to be increasing transaction
packages of shares. If until now was a continuous process of consolidation of shareholdings, they
already are consolidated and their full trading takes place, which shall be listed and trading volumes
increase. If you recently traded each year 5-10% of the shares of companies are now held positions with
one packet of 60-70% of the shares. For some operations on the capital market of Moldova has been
very, very profitable. I do not want to talk about privatization fraud or investment fund managers, who
have enriched the expense of shareholders, but there are many examples of large profits on the capital
market. SA Vitanta - the price of shares in November 2002 was 12 , 4 lei, in January 2003 the price was
119.92 lei. Or Moldova-Agroindbank - early in 2004 the price was 170 lei for a share; in early 2005 to
258 lei for an action in early 2006 - already 532 lei, 2007 - 1000 lei, and now they are dealing with
approx. 2000 lei. Field is attractive, but because of the complexity of the market, few venture on it.

Conclusion:
The importance of foreign investors in every economy is known by everyone, but that is their
investment behavior and how they react in various situations. Typically, capital market can be called
only for actual business professionals’ market participants, for the rest, is a way to put money to achieve
higher revenues as bank deposits. Of course, investors typically do not operate directly in this market,
but through intermediaries (typically brokers, investment consultants and asset managers). Nonresidents
based on what you choose to invest in an emerging market? What factors lead them to buy, sell or wait?
Presence of a large number of foreign investors in a capital market is, most times, an important
contribution to the development of scholarship, so the flow of money and the know -how that we bring.
their investment behavior, the manner of disposal of issuers in portfolio investment techniques used are
real lessons for novel small investor, according to analysts surveyed by Wall-Street. investment for
capital markets have given Often calling the stock market developments both positively by capital
inflows and the downside. Experts say that local investors have bite force to determine a trend and
expects to take signals out.
The best approach to investment decision, that the best method of auditing is the financial
analysis on the two strands, namely:
– capital market analysis, financial analysis of annual accounts
– univariate analysis, and multivariate analysis of indicators Stock Exchanges.
 Audit procedures vary from case to case and they will analyze the effectiveness of financial
decisions on the capital market, achieving a full and fair picture.
Many Romanian and Moldavian companies, both private and state owned companies, are
nowadays undercapitalized and confronted with an acute lack of capital for many years. A possible
solution for solving this problem, in their way towards capitalization, would be the appeal to the
financial market for obtaining capital, by the means of equity capital or borrowed capital in the form of
bonds – on a long term – or even in the form of certificates of deposit or some other short-term
securities.
In Romania, the capital market should be regarded as an alternative at the banking system in saving the
necessary funds for enterprises, too. This is more evident in the case of the big companies so that the
prudential banking limitations – which bind the bank exposure to one debtor on its own capitals –
become an inconvenient. One must not forget that the capital market was created for this fundamental
scope: to allow companies to raise money, by using the public savings
Foreign investments in capital markets have given many times calling the stock market developments
both positively by capital inflows and in the negative, by redirecting cash to other markets or other
financial instruments.

Anexa 1