Eastern Europe: A shelter from the QE taper tantrum

Eastern Europe has so far bucked the trend of the emerging-market sell-off.

Looking for a haven from the taper tantrum'? You could do worse than look east to eastern Europe. Most emerging markets have seen a strong sell-off following hints from US Federal Reserve chief Ben Bernanke that the Fed plans to slow the flow of quantitative easing (QE) in the near future, but some eastern European markets have remained remarkably resilient.

Stock markets in central and eastern Europe are up 1.2% in the last three months, according to MSCI data, compared with a 7.5% fall in emerging markets as a whole, notes The Wall Street Journal. What's more, if you exclude Russian firms, which have been hit by falling commodity prices, the markets are actually up by 2.3% overall. And, while currencies such as India's rupee and Turkey's lira have slumped to record lows against the dollar, Poland's zloty and the Bulgarian lev have risen against the US currency since May.

A relative safe haven

According to data provider EPFR Global, while investors have withdrawn $930m from equities in Europe, the Middle East and Africa since May, $230m has flowed into funds buying Polish equities. What's more, Paul Hollingsworth and John Higgins at Capital Economics reckon emerging European equities may continue to outperform stocks in other emerging markets, even when prices start to recover.

For a start, share price valuations have fallen to "attractive levels". Despite the recent rally, the price/earnings (p/e) ratio of Poland's stock market still "remains well below its ten-year average". It's also below the p/e ratios of other emerging-market regions. Growing domestic demand is also providing a boost to these economies, as the lot of consumers gradually improves.

Perhaps more importantly, the recent return to growth in the eurozone for the first time in a year and a half also bodes well for emerging European companies, particularly those in countries such as Hungary and Poland, which rely on the eurozone for the majority of their trade. Hungary, which enjoyed 0.5% economic growth in the second quarter, had a trade surplus of €3.68bn in the first half of the year, compared with a €3.62bn surplus last year. Poland, which saw growth of 0.8% in the second quarter, had a surplus of €574m in June, compared with a deficit of €1.09bn last year.

Bypassing the vagaries of QE

eurozone crisis

Recommended

Warsaw and Stockholm: the unexpected new threats to the City of London
UK stockmarkets

Warsaw and Stockholm: the unexpected new threats to the City of London

London has seen off challenges from Frankfurt and Paris, but two other booming financial centres are a bigger threat, says Matthew Lynn.
19 Sep 2021
Kieran Heinemann: the history of shareholder capitalism
Investment strategy

Kieran Heinemann: the history of shareholder capitalism

Merryn talks to Kieran Heinemann, author of Playing the Market: Retail Investment and Speculation in Twentieth-Century Britain, about the history of t…
17 Sep 2021
Why it pays to face up to your investment mistakes
Investment strategy

Why it pays to face up to your investment mistakes

Buying stocks can be a complicated business. But selling stocks can be tricky, too – even if you sell for the right reasons. Max King explains how to …
17 Sep 2021
Are stockmarkets heading for a fall?
Stockmarkets

Are stockmarkets heading for a fall?

America’s S&P 500 stockmarket index has gained 30% over the past year. Valuations may be high, but that doesn't necessarily mean investors should sell…
17 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021