World Economy

Emerging Europe Sees Improved Opportunities

Inflation is returning to Poland, Czech Republic and Hungary.Inflation is returning to Poland, Czech Republic and Hungary.

Emerging Europe seems to be breaking out of its stuttering pace into something a little more like a stride, signaling the possibility of improved opportunities for relevant returns.

Chris Colunga, the co-Manager of BlackRock Emerging Europe plc, comments on prospects in the region for Emerging European equities, underlined by a resurgent Greece: “Emerging Europe is just beginning to leave behind a lost decade of performance. The strong gains of 2016 and the first six months of 2017 still leave the index more than 40% below its pre-crisis peak, reported.

“We believe that Emerging Europe continues to provide a fertile ground to deliver further returns. Emerging Europe valuations are still below historical trends, investor positioning remains light and the region has the potential to benefit from several positive developments. The equities trade on less than half the multiple of its developed peers, despite having higher dividend yields, growing earnings and strong free cash flows.

“In the Central European economies of Poland, Czech Republic and Hungary, inflationary pressures continue to build, giving the potential for the region’s banking sector to break away from the low rate environment. After several years of inflation rates being around zero–and in some cases negative–we are seeing inflation returning to these countries on the back of accelerated wage growth, lower levels of unemployment and increased investment spending in the region. In particular, banks present an investment opportunity in our view, given their sensitivity to a rise in interest rates.

“Greece has seen successful progress on the second review of the country’s third bailout … [and] has just been able to access the financial markets for the first time in several years, which we feel will unlock significant investment demand into the country. The Greek financial sector is still much cheaper than its peers, reflecting its recent difficulties, and provides room for substantial improvement if the situation normalizes.”

Furthermore, the recent successful conclusion of the second bailout review may eventually lead to the subsequent admission of Greek bonds into the ECB quantitative easing program, providing the government with a lower cost of debt and reassuring investors. This, coupled with an acceleration of GDP growth, should prove to be just what the banks need to leave behind any questions on solvency.

In Russia, with the economy in good shape, improving consumer sentiment and record low inflation, there is room for interest rates to be cut; further aiding the economic recovery.

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