Nedgroup Investments: Is Eastern Europe really un-investable?

by | Nov 4, 2022

Written by Oliver Adcock, manager of Nedgroup Investments Global Emerging Market Equity Fund

As the ongoing war between Ukraine and Russia and the power crunch in Europe exacerbate the impact of declining liquidity globally, investment opportunities on the continent seem few and far between – especially when it comes to Eastern Europe. Yet there are pockets of opportunities being overlooked by the market.


Macro and geopolitical challenges

The macro view is negative: Eastern Europe is hit with high inflation and in response, central banks have been forced to aggressively raise rates, limiting the money supply and choking economic growth.

Geopolitically there is also a problem in Europe – with the invasion of Ukraine by Russia and the increasing hostility between Hungary and the European Union. However, there are pockets of opportunity that could pay to watch closely, especially with some very crucial upcoming elections in 2023.



One area of huge opportunity is Turkey, particularly if Erdogan loses power. This is a big moment for the Turkish market which has such depth and interesting stocks, as well as a growing population. If they can get their monetary policy back into place and bring down inflation, there will be some real opportunities.

However, there are so many moving parts in Turkey so it’s crucial to wait for the right entry point. Investors should look for the money supply to recover – which is starting to happen – and a more stable political and macro environment. If the latter should improve and influence liquidity, it would give investors space to be more confident and ready to act when the time is right.

When the liquidity flow improves, stocks that benefit from increased liquidity should be targeted, rather than more cyclical stocks that would benefit from the economic upswing. Should this occur, investors should initially look to buy stocks that would benefit from the improving liquidity flow in the market, rather than the more cyclical stocks that would benefit from the economic upswing. The classic quality stocks to date have been the exporters but the best returns will be on high-quality domestic exposures like retailers.


Greece and Poland

Next year is also a big election year in Greece and Poland, where the money supply is much better and there is more capacity in the market from a macro perspective.

One interesting stock in Greece is a company called Mytilineos. While they are currently an aluminium smelter and gas power producer, Mytilineos is pushing ahead with a massive drive to decarbonise its business, including manufacturing green aluminium by using renewable energy. They also use a large amount of recycled aluminium and their power plants in Greece are by far the most efficient, allowing them to benefit from high power prices.

Meanwhile, Poland is a market that has underperformed significantly so there might well be an opportunity there too. However, there is the potential for big political change next year so caution is needed for the moment.

All in all, investors in emerging markets shouldn’t overlook Eastern Europe despite the recent geopolitical turbulence as it presents good pockets of opportunities that will come to the fore in 2023.

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