The past year has presented challenges for global emerging markets (EM), marked by strong performance in the US and a weaker showing in China. Within the EM landscape, Schroders points out that Emerging Europe stands out as a region with robust performance.

As per the asset manager, factors contributing to this success include supportive election results and recovery from the difficulties faced in 2022, including an energy price shock and Russia’s invasion of Ukraine.

“EM Europe may be smaller in market capitalisation terms relative to the rest of the global EM universe, but it encompasses some attractive long-term structural opportunities,” writes Rollo Roscow, Emerging Markets Fund Manager at Schroders. 

Additionally, he informs that the economic outlook for most emerging European markets in 2024 is optimistic. The positive outlook is underpinned by falling inflation, allowing for interest rate cuts that can support consumption, adds Roscow. 

Furthermore, European Union (EU) cohesion funds and the post-pandemic Recovery and Resilience Facility (RRF) contribute to the positive economic growth picture, says the asset manager. 

“There is work to do, however, in order to return inflation closer to target, and policy rates may remain higher for longer in the region, even if central banks in Hungary and Poland have started to ease,” remarks Roscow. 

Looking ahead, Andrew Rymer, Senior Strategist, Strategic Research Unit at Schroders, sheds light on various long-term growth drivers for Emerging Europe. These include EU recovery and cohesion funding, attracting foreign direct investment (FDI) related to the energy transition.

Also, the region is set to benefit from the global trends of de-globalisation and nearshoring, adds Rymer. According to him, the region faces risks such as another energy price shock and a potential Eurozone slowdown. However, Schroders believes that positive political developments in Greece and Poland contribute to an overall favourable market outlook. 

Rymer also contends that the valuations across the region, on a combined z-score basis, appear cheap, with Hungary standing out but carrying higher macroeconomic risks. “We hold a positive view on Greece, Poland, and Hungary, with aggregate valuations attractive across all three markets,” says the asset manager.  

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