Recently, Emerging European markets have faced several challenges like the Russia-Ukraine war and broader macro concerns like inflation and rising interest rates. This spurred volatility in the market and led to significant selloffs many times. However, Barings states that Emerging Europe is a hotspot of growth and has identified the key opportunities in the region’s market.

According to Barings, the economic outlook in Europe has improved over the last 18 months. This is primarily due to a decline in energy prices, and brighter growth prospects than the broader Euro area. This constructive economic backdrop combined with attractive current valuations makes Emerging European equities a compelling bet. The asset manager further adds that the MSCI Emerging Europe index is currently trading at a significant discount relative to the MSCI World index on both a price-to-book and price-to-earnings basis.

“Emerging European countries are forecast to grow between 2%–4% in 2024, outpacing that of the broader Euro area due to rising incomes and consumption trends, which in turn are likely to be reflected in improving corporate earnings – and subsequently an increase in investor confidence in the region”, stated Barings. The asset manager believes that several compelling country-specific factors support Emerging Europe’s encouraging macroeconomic trends. Barings is optimistic that these factors would contribute to the long-term appeal of the region.

Barings also presents a region-wise analysis of the opportunities in Emerging European markets. It lauds the efforts of Greece in emerging from the brink of a Eurozone exit, to delivering GDP growth rates of 8.4% in 2021 and 5.9% in 2022. As per the asset manager, clean energy presents a unique development opportunity for the country. Due to its warmer, sunnier climate, as well as the coastal winds, Greece can become an energy exporter of the future. Additionally, Greece can potentially regain its investment-grade credit rating, more than a decade after losing it during the euro area’s sovereign debt crisis.

Another unique opportunity among European nations Barings names is Turkey. It boasts a large and relatively young population of over 80 million people, of which nearly 40% are under the age of 25 years. Thus, this country has a larger working-age population base that offers an opportunity for accelerated economic growth, also known as a “demographic dividend”.

To mitigate supply chain risk, several companies are looking at nearshoring. With their skilled labour markets, strong regulatory protection, alignment with the EU, and faster delivery time many new EU members like Slovakia and Poland are set to benefit from this. The IMF expects the volume of goods and services as a percentage of GDP to grow continuously, making the Central European region, an export powerhouse within Europe.

The Barings also looks slightly beyond Europe and identifies quite a few opportunities in the Middle East and South Africa. Alongside the domestic strength, the asset manager sees compelling opportunities in export-focused sectors such as energy and materials. Barings considers Saudi Arabia and Qatar to be the major beneficiaries in the third region. “Here we are already seeing a number of exciting opportunities in the privatisation of state assets, alongside a growing domestic base of entrepreneurial companies.”

Barings sums up its analysis of Emerging Europe and further afield by stating that only the companies exposed to a secular growth trend or the ones with a flexible business model will have a competitive edge. “While near-term risks and uncertainties – whether around the lasting impacts of inflation, politics, or economic growth – will likely continue to drive headlines for the foreseeable future, the long-term growth opportunity in Emerging Europe remains compelling,” predicts the asset manager.

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