Eastern Europe is one of the most interesting territories for investors at the moment, as an emerging market, it has a lot of potential, and there is a chance for investors who are willing to put down some cash now to watch the economy grow to become a truly mature and successful one.
Europe has something of a bad reputation at the moment, because over the last few years there has been a lot of turbulence in Greece and Portugal, but as you head further east, this is less of an issue – the contagion has not spread that far, and there is a lot of potential for growth in the East.
The Eatern Europe market bloc includes Poland, Hungary and the Czech Republic – all areas that are full of potential for economic growth. These are countries that are investing in infrastructure, and gradually turning into service economies. As people in those countries are enjoying higher disposable incomes, they are also looking for more things to do with their leisure time. Spending is increasing, and there are options for people who are looking to invest in service and luxury goods companies.
The debt ratios in these countries are comfortable, and Hungary in particular is developing a fiscal front. These are countries that are stable, powerful, and looking to develop at a rapid rate.
There is a heavy emphasis on trade in these countries, and that could be a cause for concern, as it means that their fortunes are very much tied to the strength of the Euro. The Greek Exit threat was something that could have caused turmoil for the Euro-zone, and while the British referendum will not have as much impact, it will impact the economy to an extent, and could shatter investor confidence.
As you can see, there is always an element of risk – but the starting point for Eastern European shares is lower, and the only way to go is up, as long as you choose companies that are established enough that they are unlikely to fail because of a small run of bad fortune.
The corporate default rate is expected to increase slightly in emerging markets over the course of 2016, but 3.5 percent is still relatively low – this year it was just 2.9 percent, which was surprisingly low.
The European Central Bank has proposed stimulus measures, which will benefit most parts of the Euro-Zone. These were not as strong as were expected initially, but they are likely to benefit the emerging markets better than those that are already struggling. Eastern European debt is likely to gain from the purchase program of the ECB, and as yields on euro-zone debt fall, investors may look elsewhere – including equities, in order to keep capturing the best possible returns.
The EMEA markets, and Latin America, are quite clearly some of the best markets for investors right now, and will probably remain so for another year or two.