Fund managers are increasingly positive on the outlook for eastern Europe, as the macro-economic pict...
Martin Taylor, manager of the Baring Eastern Europe Fund, says: "The health of many of the central European economies is dependent on the state of the EU economy, and we see no sign of economic growth slowing in the EU. Seventy five per cent of central Europe's exports go to the EU. In economic terms these countries can be viewed almost as satellites of the EU, in much the same way that Mexico tends to follow the US.
"In the Czech Republic, Hungary, Estonia and Slovenia we are now seeing balance of payments surpluses, and we expect to see this soon in Poland. This is pushing currencies up, forcing interest rates down. The result is a fantastic environment for equity investing. This is in addition to our bullishness on the convergence story itself."
Robin Geffen, manager of the Orbitex Eastern European fund, says: "We view the central European countries as a play on Euroland growth, which is estimated at around 2.9% for 2000. A 1% increase in the German industrial output rate translates into 1.6% GDP growth for Hungary, 0.8% for the Czech Republic and 0.4% for Poland."
The main area of difference for the two managers is in their attitude to Russia. While Taylor is very positive, holding Russia as the fund's largest country weight at 35%, Geffen has been bearish of late, and has a zero weighting.
Taylor says: "The case for Russia is very different from that in the rest of eastern Europe. We started to turn positive on its prospects during the first half of 1999, as a result of rising oil prices. Since September 1999 we have become positive on all aspects of Russia, both political and economic.
"The economy has turned around as a result of the oil price, with the 1998 rouble devaluation continuing to make exports competitive, and to create a large amount of domestic import substitution. Economic growth was 3% in 1999 and for 2000 should exceed this. Inflation is down to 22%, and we think there is a good chance there may be a budget surplus for the first time in many years.
"Of course this would not be enough if there was a high level of political risk, but we believe Putin has a genuine reformist side. Since taking on the role of acting president he has promoted reformist technocrats to the Russian parliament. He clearly seems to believe that Russia can only be strong if the economy is strong, and realises the only way to achieve this is by creating the right conditions for foreign investors"
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