Bank Austria Creditanstalt put out a release that emphasized the fact that although there are significant advantages associated with EU membership, the accession countries will also be faced with new challenges. “The period right before and after the EU entrance will be a reality check for the new members”, Willi Hemetsberger, Member of the Managing Board of Bank Austria Creditanstalt stated on the occasion of the Euromoney Conference in Vienna. “This will be the point when it becomes clear how well the countries have prepared themselves for the Union.”
According to the BA-CA release, EU accession will have an overall positive impact by lowering country risk, improving business confidence for long-term investment, and encouraging inward foreign investment. Above-average growth rates in the accession countries mean that wealth creation and corporate profits will grow more rapidly than in other European countries. However, there is little impact expected for markets, as the event has been a known fact for quite some time, and the financial markets have already priced in most of the benefits.
The release also stated that the equity environment is positive. Global economic recovery, combined with low interest rate levels on both sides of the Atlantic, provide a positive environment for Emerging Markets equities. Thanks to strong growth, most potential can be expected in Russia and Turkey. Polish and Czech equity prices are close to fundamental value, though share prices in Poland will continue to be supported by domestic pension and investment fund demand.
On the flip-side, the bond markets are still attractive to investors. Credit spreads in Central and Eastern Europe are close to historic lows. Investor risk appetite is strong, credit quality has improved and further inflows into bonds from the region are expected. Low spreads, however, should not be taken as a given. The rules of the “Old World” continue to apply to the sovereign credit markets of Central and Eastern Europe. As such, the eventual tightening of US monetary policy will work to widen spreads.
As EU-membership is now a given fact, the focus in the region will be shifting to the next significant step in economic integration – the accession countries’ efforts to prepare for membership in the European Monetary Union. The recent volatility of the Hungarian markets has demonstrated that the accession countries will have to pursue strict fiscal and monetary policies in the coming years to further gain investor confidence.