Which economies are the new tigers?

The best-performing ex-Communist economies are setting quite a pace. Estonia and Latvia posted 10% GDP growth in 2005, which is "reminiscent of Asia's tigers", says The Economist. But the question now is "whether the new Europeans can keep it up and catch the richer half of their continent".

The good news is that most of the "EU-8" (the eight ex-Communist countries that joined the European Union two years ago) are looking economically robust. And for all such countries, other than Hungary, external shocks should not prove to be much of a problem. But that doesn't necessarily mean that their stockmarkets will continue to perform.

The EU-8's prospects are certainly "brighter" than for those former Eastern-bloc countries still waiting to join, such as Romania and Bulgaria. And they remain more competitive than their developed European neighbours.

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But the valuations have been rising fast to reflect this. Poland, for example, is on a p/e ratio of 16.4, compared to the UK's 15 times, and the MSCI Emerging Europe, Middle East and Africa index is trading at a 20% discount to developed market stocks "the smallest percentage in about seven years", says Michael Tsang on Bloomberg.com.

Then there is the Iceland effect, says Stefan Wagstyl in the FT. Iceland was the first emerging market to be hit by fears that the world carry trade (see page 46) would be wound up when Japan scraps its zero interest rate. "But there are concerns that the same chill winds blowing around Reykjavik could be felt in Budapest and, possibly, other central European capitals."

And now there is political uncertainty too. Hungary, the Czech Republic and Slovakia have elections this year, and Poland could also go to the polls. The real worry though is interest rates, says Iraj Pouyandeh in the Royal Gazette, Bermuda. "Global liquidity is being reduced, and this has normally been an important element in causing a correction in emerging-market valuations."