Interesting Q&A in the Financial Times with Marcus Svedberg, chief economist at East Capital, an independent asset manager specializing in eastern European financial markets with approximately 3.2 billion under management.

Some highlights:

  • “Equity markets in eastern Europe have corrected sharply and rather indiscriminately this year . . . The result is that many markets are very attractively priced at this point and although I expect the volatility to stay in the short term, it is possible to enter the markets at very interesting valuations.  I also think that the crisis will lead to a better investment climate in the future.  The competition for investments will be much tougher and emerging markets in general will be forced to improve the bureaucracy, transparency, the fight against corruption and other areas foreign (and domestic) investors care about.
  • “Many analysts are arguing that Russia should face the facts and devalue the Rouble. Few Central Banks have managed to defend a currency under pressure and it just wastes reserves before having to devalue in the end anyway.  Although I agree with this on a general note, Russia is not a typical devaluation case since it (still) has large forex reserves and a current account surplus. The pressure on the Rouble is primarily an effect of the falling oil price and I think Russia will continue to favour the gradual depreciation approach.”
  • Value will trump growth in Eastern Europe in 2009: “Although some markets, sectors and companies will continue to grow, the growth opportunities will be much less obvious next year compared with the previous years. On the other hand, the valuations of many stocks or entire sectors have come down substantially and many companies are very attractively prices at this point.
  • “The short-term outlook for the Ukrainian economy is not very good, as growth probably will come to a standstill next year and there are some difficult external imbalances that need to be financed.”
  • “The number one short-term vulnerability for Bulgaria is the high current account deficit.  The longer term challenge for Bulgaria is to continue to reform the economy and make it more competitive and transparent.”
  • “Although the geopolitical situation in Georgia before the summer might not have been sustainable, I don’t think the political outlook is better now. The issues at stake are very complicated and I do not think we will see any comprehensive solutions in the near future. Multinationals had started to come to Georgia before the conflict and it is difficult to assess when they are willing to return.
  • “Hungary was in the middle of an economic restructuring process when the global financial crisis broke out and was thus in a more vulnerable position than many of the neighbouring countries in eastern Europe. Hungary has been plagued by high budget deficit and sovereign debt levels for some time.”