While the developed European countries settle back to normal, albeit low, growth rates, Eastern Europe exchange traded funds (ETFs) could reflect the rocketing growth of emerging European nations. But as with any emerging market, there are some threats to be wary of.
Vienna Insurance Group., emerging Europe’s largest insurer, remarks that the Austrian economy is picking up momentum and the emerging European states will likely see growth accelerate above the slow pace at which Western European economies expand, reports Michael Shields for Reuters. That could well result in an improvement on the flat performance of late in iShares MSCI Austria (NYSEArca: EWO).
However, premiums will increase in 2011 at low percentage rates as companies adhere to austerity measures to help manage their ballooning deficits, says the company. Data shows that unconsolidated premiums written increased 6.1% in 2010.
The European Bank of Reconstruction and Developed recently stated that the threats to the recovery of Eastern European countries could reduce inflows of foreign direct investment and lead to a “sharp” currency depreciation and other financing problems for the region, writes Paul Hannon for The Wall Street Journal. The threats include a rising inflation rate, which could lead to premature rate hikes, and potential “risk aversion” among investors as a result of eurozone problems.
If no problems rear their heads, many of those economies will experience rapid growth, bolstered by a recovering Western Europe and higher commodity prices, says the EBRD. [Russia ETFs: Government Opens Its Doors.]
EBRD raised its growth projection for Poland to 3.9% from 3.5% and its Hungary estimate to 2.0% from 1.7%, but the group kept forecasts for Russia and Turkey unchanged and dropped Ukraine’s outlook to 4% from 4.5%. [Poland ETFs Benefit From Debt Crisis.]
Looking at funds like Market Vectors TR Russia (NYSEArca: RSX) and SPDR S&P Emerging Europe ETF (NYSEArca: GUR), however, they haven’t far outperformed Western Europe funds like iShares S&P Europe 350 (NYSEArca: IEV). But that may happen if Eastern Europe can dodge its potholes.
For more information on Eastern Europe, visit our Eastern Europe category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.