An Erste Group research report, “CEE Equity Strategy”, claims that the sub-prime crisis will take time to fade out and will remain an issue in 2008 although its impact on CEE economies is limited.
“The outlook of slowly growing economies is likely to result in weaker global stock market performance in 2008. Nevertheless, the brake on growth should not be as significant in CEE, as companies have been producing strong cash flows during the recent boom years and should be able to finance capital expenditures to a greater extent”, says Henning Esskuchen, equity co-head, Erste Group.
Although 2008 will witness maturing business cycles and a reduction in growth globally, the CEE region continues to have positive levels of growth, supported by ongoing convergence.
“The financial markets have seen a bit of an overreaction to the sub-prime crisis in 2007. Even though markets have recovered slightly, the sell-off could provide for some further recovery potential. This would soften the impact of the economic outlook and even offer opportunities among cyclical stocks, which would not be the obvious choice in maturing economies,” adds Esskuchen.
CEE economies have continued to show impressive growth figures, despite the worsened global economic outlook. However, in most CEE economies, growth is going to slow down somewhat.
While the US sub-prime mortgage market crisis and liquidity shortage on major markets have had a limited impact on CEE economies, high commodity prices have elevated inflation in CEE.
In Romania, even though the current account deficit is something to behold, we remain comforted by the fact that the structure of imports is rather natural for a country at this stage and consumption is not a massive concern. The performance of the Romanian market will strongly depend on the sentiment towards the country and its economic conditions.
Emerging markets gained in terms of weight in global equity funds, at the expense of developed markets. Moreover, global emerging market funds improved their view on emerging Europe and its weight increased, contrary to emerging Asia and Latin America.
According to the ZEW/Erste Bank sentiment indicator, the economic expectations in CEE are by far more optimistic than in the Euroland: while in Euroland 2/3 of respondents have worsening economic expectations and only 1/3 expect a stable environment, in CEE is it vice versa: 2/3 expect a stable environment and 1/3 have worsening economic expectations.