Hungary, Poland and the Czech Republic have all been performing well relative to other regions in th...
Hungary, Poland and the Czech Republic have all been performing well relative to other regions in the emerging European markets, according to Kim Katechis, head of emerging market equities at Scottish Widows Investment Partnership.
He says that compared to a 16% fall for emerging markets in dollar terms for the month to date, Hungary had increased 4.6%, the Czech Republic decreased 0.08% and Poland fallen by 12%.
He argues that a number of factors protected these economies from the full extent of the turmoil that has been affecting other world markets. All importers of oil, these countries are benefiting from lower crude prices. Lower interest rates in Western Europe have also helped, according to Katechis. He says: 'If the US dollar weakens against the euro, it will help the convergence of the countries hoping to join because a stronger EU market leads to stronger demand in the central European countries.'
Irfan Janmohamed, director of emerging markets at Merrill Lynch Investment Managers, is more positive on Hungary than the other two countries. He says that looser monetary and fiscal policies recently has led to strong fundamentals and points to Gideon Richter as a company in the region that is well placed to continue growing. The pharmaceuticals producer has reinforced its position in the former Eastern bloc countries and is breaking into Western markets with oral contraceptives.
Katechis points to the fact that for every percentage point of growth in industrial production in Germany, Hungary sees 0.8% growth and Poland 0.6%. He attributes this to the high proportion of semi-finished or raw materials that come from these countries.
The political situation in Poland is causing some uncertainty according to Katechis. He says that there was some surprise that the ex-communist SLD did not gain an absolute majority. This has caused concern that a coalition with the PSL may force the country into less enthusiastic policies concerning the euro.
Hungary has a stable political set-up and the economy should benefit from increased public spending on road-building and housing. Subsidies on mortgages to Hungarian nationals should also boost demand, says Katechis. But Philip Ehrmann, head of Pacific & emerging markets at Gartmore, argues that it is a small and defensive market and will lack the potential for growth when recovery comes.
The telecom sector is one that should perform well across the region, Katechis says. He points out that companies in this sector are attractively priced, have the ability to generate cash and do not have the debt of their western counterparts.
Janmohamed supports this analysis in Hungary for Matav, which he sees as a well managed company in a position to add value.
But he is much less positive on its Polish counterpart TPSA, which he argues is not as well run and notes that opportunities to get into Czech telecom company CT are limited due to its illiquid nature.
Another strongly performing sector across the region is banks. Katechis says that restructuring has put them in a good position to take advantage of low interest rates.
Countries shielded from downturn
Telecoms well positioned
Pharmaceuticals in Hungary growing
Political situation in Poland uncertain
Czech markets lack liquidity
Hungary overly defensive
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Total of 72 accredited firms
23% fall since Q1
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