As market participants regain their taste for Europe and begin sifting through the many investment possibilities they have before them, Central and Eastern Europe (CEE)—a region that had enjoyed vast amounts of investment in the years prior to the Eurozone crisis, but then suffered subsequent cash withdrawals from its many close links to core Europe—is once again on the radar, as evidenced by the success of recent sovereign bond issues from countries including Poland, Hungary and Romania.
These and other nations have successfully placed close to $6.25 billion in bonds in recent weeks, according to Alexander Moseley, senior portfolio manager of emerging market strategies at Schroders, and that too, at a relatively fair price. “There’s evidently good appetite for lending to these countries, and they have been able to take advantage of favorable market conditions,” Moseley said.
Today, the CEE countries look very attractive from a spread perspective compared with even six months ago, said Vlad Milev, portfolio strategist at the investment firm Payden & Regel. “Now that the overall European risk has reduced, investors are looking at the bonds from Hungary, Romania, Serbia and other countries because they offer better spreads than sovereign bonds from Asia and Latin America, so the recent bond issues were oversubscribed as much because of the countries’ individual positions as their luck of being in the right place at the right time,” he said.
Yet Milev said he was not overly optimistic about the longer-term prospects of the CEE region, which suffered significant setbacks as a result of the Eurozone crisis. While growth in 2013 will be slightly better than it was in 2012, and will certainly top that of core Europe, these countries have in the past ridden the wave of European Union accession, and that made them attractive to foreign investment of all kinds, according to Milev.
That trend is now gone, however, and though these nations can certainly fund themselves quite easily in the capital markets, they must have also have a new investment thesis to back them up for the longer term, one that focuses on generating domestic growth and on building solid local institutions to support and strengthen their domestic economies, Milev said.