Eastern Europe, ETFs Feel the U.S. Credit Crunch | ETF Trends

The economic troubles that weighed down exchange traded funds (ETFs) started here before spreading to Europe. Now, after a strong run, Eastern Europe could be next up to experience a slowdown.

Eastern Europe has been experiencing a bubble all their own, with new private businesses popping up everywhere, and economic and political stability. But the party cannot last forever, and wage costs are creeping up, labor shortages are hurting, infrastructure keeps on aging, which is actually stopping up Poland’s trade, says The Economist.

Growth has still managed to stay steady in this region, however, as domestic demand has been up, and intra-East European trade has made up for fewer exports in the West.

Latvia and Estonia in particular experienced breakneck growth in recent years, but the bubbles have popped. Retail sales and industrial production in Latvia are down, while construction has imploded. Inflation is perched at a whopping 17%. At least the gloomier predictions have so par proved to be unfounded. Latvia hasn’t been forced to devalue.

In Poland, things are starting to recover, as many Poles are returning from Britain, where they had retreated to find work. Growth was up 6.1% for the first quarter, and unemployment has all but disappeared after hitting 20% in 2003. The biggest threat is rising interest rates, which would cause more of an economic slowdown than the previous rate of 4% , currently at 6%.

There is no Slovakia ETF, but access to this region can be had through the Austria ETF.

ETFs covering these regions are:

  • iShares MSCI Austria (EWO), down 19.8% year-to-date
  • SPDR Emerging Europe Fund (GUR), down 25.5% year-to-date
  • Claymore/BNY Mellon Frontier Markets (FRN), down 12.5% since June 13th inception
  • WisdomTree Emerging Markets High-Yielding Fund (DEM), down 5.6%

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.