T-bills better than shares

Following its quasi-failure to gain money out of Romanian listed shares, one of the foreign investment funds active on the Bucharest Stock Exchange and RASDAQ has recovered part of its initial loss by investing in eurobonds of the same nationality. The decision to change the investment portfolio structure was prompted by the very high yields provided by the eurobonds issued by the Romanian State and companies over the last few years. The Romanian Investment Company (RIC) fund was established in 1997 by one of the leading management companies in the world – Foreign & Colonial, in order to invest more than $50 million in the shares of Romanian listed companies.
Five years of existence later and about one year before the end of its life span, the fund sees the bulk of its net asset comprised of the eurobonds issued by Romania in 2001 and 2002 and by Termoelectrica in 2002.
RIC had therefore come to hold approximately $8.7 million in Romanian eurobonds by early December last year, that is 30% of its total exposure on Romania and 21% of its total value. Furthermore, 11% of RIC’s net asset consists in Russian bonds, with cash accounting for another 15%. The weight of Romanian shares had gone down to 53%.
How come a fund specialising in the two stock markets has taken such a turn? Because of the lack of interesting investment options on the Romanian market and the higher liquidity of the eurobonds, the RIC officials say.
“We have always had the ability to invest in debt and took a view (which turned out to be very correct and profitable) that Romanian debt (especially euro-denominated) was a good investment. It is also much more liquid than most available equities, which is  convenient for us,” Harlan Zimmerman, RIC manager told Ziarul Financiar. The Romanian eurobonds are very profitable due to the high interest paid by the Romanian State and by the state-run companies. For instance, the Finance Ministry’s 2001 issue bears 10.63% yearly interest (in euro), while the 2002 issue bears 8.5% interest.