Booming energy and commodity prices are fuelling growth in emerging European countries but they also risk getting burnt by inflation, warns Barings.
An oil price at over $140 a barrel is polarising the world and creating winners and losers, says Martin Majdaniuk, manager of Baring Emerging Europe.
He believes the best investment opportunities in emerging Europe lie within the commodities and consumer sectors in Russia and Turkey.
Energy producers and exporters are also experiencing phenomenal growth rates with Russia expecting GDP growth of 8.5% and $1.3bn in oil revenue a day. Other commodity beneficiaries include Kazakhstan and the Ukraine, says Majdaniuk.
However, Russia and the Ukraine’s economies could be at risk of overheating and damaging margins. “Energy importers face serious macroeconomic challenges - widening current account deficits, inflationary pressures and lower economic growth,” he says.
Turkey is facing a deficit bill as it imports 90% of its energy and Majdaniuk expects the lag effect in 2-3 months for the price of oil to feed through into the Turkish economy.
The clear victim of the market slowdown, Turkey also has one of the highest real interest rates at 6%. “Central Europe and Turkey, macroeconomic headwinds are getting stronger at this point in time,” says Majdaniuk.
However, Turkey’s long-term demographics are exciting with the population expected to soar from 70m to 100m in the next 40 years, he says. “Turkish companies have benefited form regional growth and are well positioned from the Balkans, Russian and Middle East growth.”
Majdaniuk believes the most exciting countries to invest in are Russia, Kazakhstan and Poland.IFAonline
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