News 20110927 cee


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News 20110927 cee

  1. 1. News September 27th, 2011 Eastern European States, the ugly ducklings of Europe, become more beautiful in the eyes of Western investors scared by the crisis Market fears about the financial and economic problems in the euro area and U.S. political tensions make Central and Eastern Europe (CEE) to be more attractive to investors, but also there crisis began to erode this confidence. CEE is seen by investors and analysts as the extreme version of Western Europe. Whilst Western economies grow very slowly, the Eastern drone, but when the West is bad, the East is terrible, says CNBC in a study on CEE. Financial and economic crisis have shrunk the areas where investments are safe. In this context the eastern economies, which only two years ago faced with sudden stop of capital flows, are courted by investors looking for higher earnings and secure. Countries in the region have taken drastic measures to reduce public spending and maintain budget deficits under control to regain market confidence and are now considered to be in better shape than Western economies. "States in CEE have implemented structural reforms and are more successful than developed countries", says Peter Montalto, an analyst at Nomura. Cost of insurance against default (credit default swaps - CDS) for CEE countries is lower than in recent years in euro area economies. CEE is also better in terms of debt relative to GDP. Eastern European states are better than the West in terms of debt In the euro area, the average ratio debt/GDP is 85%. In Poland, the indicator is 55% and in the Czech Republic and Slovakia is 38% respectively 41%, according to Eurostat from the end of last year. Swiss central banks recent action to limit exchange rate franc/euro in order to prevent fatal appreciation for the economy and for those with loans in Swiss francs will stimulate investment in the CEE region, considers Montalto. He warned however, of the danger of the emergence of speculative bubbles.Eng. Paul Keisch Page 1
  2. 2. News September 27th, 2011 On the other hand, as the euro zone crisis intensifies, eastern economic outlook darkens. The region is highly exposed to fluctuations in trade with the richer states in Western Europe. "Currently, all CEE markets are affected by contamination of euro zone problems. Investors are cautious in this region, particularly the ones from U.S.A who were skeptical about the euro zone", said Simon Quijano-Evans, chief economist of ING. He noted that credit rating agencies tend to improve ratings emerging European economies and to demote those of countries in the euro zone bonds supports investments in eastern states. Mobius: In Eastern Europe can invest successfully, but should be carefully Mark Mobius, president of Templeton Emerging Markets Group, which owns Romanian Property Fund, believes that CEE is still a place where you can invest successfully if attention is given to selected sectors and activities. "In CEE the stock markets haven’t performed badly, but growth rates are relatively low. Feeling that gives the macro picture is not as exciting, but at the company level can find opportunities because the values were quite low", says Mobius. In 2009 CEE currencies fell sharply as a result of massive capital withdrawal by foreign investors, which raised fears that the economies will collapse causing damage to the world. UniCredit analysts consider that low inflation should help the region combating the effects of economic slowdown in the euro zone and U.S.A, given that domestic demand will rise, probably due to increased purchasing power. Currencies of Eastern Europe are beginning to feel the tensions in the euro zone The Polish zloty is the worst performer this quarter among CEE currencies, depreciating by 13.7% against the euro during this period, according to the ECB. Over the same period, the Romanian leu, the Czech koruna and the Hungarian forint fell with 1.7%, 2.3% and respectively 10.1%. Poland is penalized by investors while the weak economic growth and October 9 elections have raised speculation that Prime Minister Donald Tusk will not succeed to reduce the budget deficit below the required level the candidates were asked for when entered into the euro zone. The government relies on a 4% economic growth next year, while banks Goldman Sachs and Bank of America reduced their estimates from 4.2% to 3.8% respectively from 3.7% to 2.9 %. "Until recently the Zloty was Europe, Middle East and Africa darling. Those times are gone", said Benoit Anne, an analyst at Societe Generale.Eng. Paul Keisch Page 2