Following the stress tests conducted by the Financial Supervisory Authority (ASF), Romanian investment funds risk important losses. According to a press release, the most important risk identified at the level of the entire market is that on change of interest rates, as they could lead to changes in the value of investments in bonds valued by marking to market.
“For the entire market, applying the stress factors related to the interest risk (changing the interest rate for RON by two percentage points and interest rates for other currencies by 1.5 percentage points) would determine a decrease in the market value of all investments in bonds of the 102 participating UCI (Undertakings for Collective Investment) by around RON 990 million (5.95 percent of the value of investments exposed to this risk and respectively 4.59 percent of the total assets value). Therefore, although the severity of this risk is relatively low, changing the interest rates represents a potential vulnerability at sectoral level which requires deep analysis and monitoring, taking into account inclusively the effects which the evaluation method of these instruments (e.g. marking to market vs. using models) could have in a potential crisis situation (with significant fluctuations in the medium term of interest rates),” ASF stresses.
At the reference date for the stress test, the share of investments exposed to the interest risk was around 77 percent of the total assets value summed for all the participating investment funds.
ASF has conducted a stress test to which 102 UCI authorized in Romania have participated (73 open-end investment funds – UCITS and 29 closed-end investment funds – non-UCITS), with a total asset value on the reference date (March 31, 2016) of RON 21.61billion.
On the other hand, the share of investments exposed to the risk of decrease in share prices is very low at the level of the entire market (about RON 898 million, i.e. 4.08 percent of total assets).
The currency risk is significant in terms of inherent (initial) exposure due to important placements in instruments denominated in other currencies than the currencies of the funds (RON 4.06 billion, i.e. 18.78 percent of total assets).
In most cases, however, this impact was very low, because 29 of the funds with the most important inherent exposures to currency risk used derivatives to manage this risk. At market level, the impact of applying the shock factor on the currency risk was only RON 64 million (1.58 percent of the exposure and 0.30 percent of total assets, respectively). Thus, according to ASF, the currency risk is not a vulnerability at sectoral level, because, at market level, it is well managed by participants, so the severity of this risk is low.