Advertisement

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.

Advertisement - Article continues below

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According to data provider EPFR Global, while investors have withdrawn $930m from equities in Europe, the Middle East and Africa since May, $230m has flowed into funds buying Polish equities.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

Advertisement
Advertisement

Recommended

Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Beware the hidden risks when investing in emerging markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Emerging markets: buy when the news is bad
Emerging markets

Emerging markets: buy when the news is bad

Emerging markets are being squeezed by local turmoil and by more general factors. But bad news can spell opportunity for investors.
5 Nov 2019

Most Popular

An economics lesson from my barber
Inflation

An economics lesson from my barber

On reopening his shop after lockdown, Dominic Frisby’s barber doubled his prices. It’s all part of the post-Covid inflation process – and we’re going …
8 Jul 2020
Three ideas for Lloyds Bank's new boss
UK stockmarkets

Three ideas for Lloyds Bank's new boss

The Black Horse needs whipping into shape. A change at the top provides a great opportunity, says Matthew Lynn.
12 Jul 2020
Why the moving average is my favourite charting tool
Sponsored

Why the moving average is my favourite charting tool

Traders and technical analysts use "moving averages" to iron out daily fluctuations and give a much clearer picture of a market's direction. Dominic …
13 Jul 2020