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Är det då rätt att redan nu börja investera? Visst finns det fortfarande en hel rad risker i alla världens ekonomier just nu och när det dessutom finns skulder med i bilden bör man alltid vara extra försiktig. Men för den långsiktige investeraren finns det skäl att titta närmare på Baltikum. Det verkar som om Estland kommer att kunna konvertera till Euro på nuvarande växelkurs från 1 januari. Lägg därtill snabbt uppjusterade BNP-prognoser för hela regionen och det börjar se intressant ut.

När vi var i Tallinn härom veckan besökte vi bland annat Tallinna Kaubamaj, ett av våra största innehav i Baltikumfonden och bilden av en förbättrad ekonomi bekräftades definitivt. Denna bild förstärktes ytterligare av våra diskussioner med hotell - och restaurangoperatörer i området.

Tallinna Kaubamaja - företaget och varuhuset firar 50 år

Två East Capital-anställda, Julianna Sosnovska och Tania Ivanova, på besök hos företaget.

The commodity rich (and not very open) Turkmenistan and Uzbekistan managed to grow 7% and 6% respectively according to recent estimates whereas the more open but less commodity rich Tajikistan and Kirgizstan could grow around 3%, according to the EBRD. The main economy of the region, Kazakhstan, was hit hard by the crisis through its leveraged construction and banking sector was expected to contract in 2009. But preliminary numbers suggest that a faster than expected recovery during the second half of the year pushed growth into positive territory for the full year. This is quite an accomplishment even though a lot can be explained by rebounding commodity prices. And there is actually a neighboring commodity exporter that is performing even better than the stans – Azerbaijan is forecasted to have more than 9% growth in 2009. This is a sharp slowdown compared to the 30% growth recorded in 2006 but it is nevertheless worth pointing out that the best growth in Europe is in its eastern periphery.

For a number of historical and cultural reasons, the French and Russians have much in common including mutual appreciation and respect for each other. But what has always been striking to me as a French national - during the 1990s when I used to live in Russia or today when talking about Russia to investors and media representatives in France - is the fact that these cultural ties do not lead to more understanding in how to do business or how to invest in Russia. French Foreign Direct Investments in Russia amounted to only USD 0.4 billon in 2008, which is 9 times less than investments from the UK and 6 times less than investments from Germany. The bulk of our own French investor base has chosen to invest in our Eastern European Fund, considering our Russian fund to be far too exotic, while the EU convergence theme for Eastern and Central European countries is easier to grasp.

There is an information gap when it comes to the business environment in Russia and the bad news always seems to outweigh the good news. Public opinion in France tends to focus on the fact that the French retailer Carrefour has decided to withdraw from the Russian market, while at the same time choosing to ignore the immense success its competitor Auchan has achieved in the very same market.  Media remembers the alarming debts levels of some of the oligarch-owned companies in the middle of the crisis but fails to notice that the Russian banking system is strongly capitalized today. Investors are left with the long-standing memory that Russian GDP fell 8% and hardly believe the forecasted GDP growth of 5% for 2010. High debt was also a buzz word I heard during these two days, applying both to Russia and the rest of Eastern Europe, and it was a privilege to show how well most of our markets stand on this specific issue, both in terms of public sector and total debt to GDP, while also explaining the implications of low debt for future growth in these economies.  

I suppose that highlighting some of these favorable features is not only necessary in France but basically anywhere in the world. The information gap – leading to a high perceived risk – must be one of the reasons that Russia and many Eastern European markets today trade at an unjustified high discount compared to other emerging markets. This also explains why so little of the record-high inflows to emerging markets funds in 2009 (USD 80 billion) was invested in EMEA funds in comparison to inflows to Asia, Latin American and global emerging markets.

Such topics are hardly new but as the panels were dominated by experts from emerging markets rather than Western Europeans and Americans, which is often the case, the insights were more interesting than usual. Jim O'Neil, the founder of the BRIC concept visited Moscow the week before and concluded that only weirdoes argued for the removal of the R in BRIC. A similar sentiment, albeit in more diplomatic terms, was evident in the Troika conference. It is true that Russia has suffered harder from the global crisis than many other emerging markets but that has not destroyed the longer term catch-up process and Russia is indeed recovering faster than most analysts predicted.

Even though there was an overall strong belief in Russia as a core member of the BRIC group (and for Eastern Europe in the wider emerging market world), it was also clear that China is the shining star of the group. Just as Greece and other highly indebted Western countries are always mentioned in a negative way (see previous posting from Vienna), so is China and to a lesser extent India mentioned in a positive way at international conferences and in discussions about global development.

There are some renewed talk about decoupling, stemming from the strong Chinese and Indian growth during the global recession, but that is still premature and at best partial. There are, however, an increasing amount of interaction between the world’s leading emerging markets and trade and investment flows between developing countries are growing very fast, thus gradually reducing the reliance on the OECD countries. 

For East Capital, one of the most interesting aspects of this trend is the strong interest to develop the ties between Russia and China. It was debated at the conference whether Moscow’s stronger focus on Sino-Russian relations represent a strategic new direction (i.e. Russia turning to the East at the expense of the West). The verdict may still be out on that but I believe it is not a zero-sum game and that it makes perfect economic sense for Russia and China to develop their commercial relations. It is a perfect fit since Russia has the resources China needs and China is willing to make the investment Russia needs in order to get access to those resources.    

We often claim that it is important to be in Eastern Europe in order to understand Eastern Europe. We can perhaps add that it is equally important to be in emerging markets to understand one of the most fascinating development within these markets, that is how they increasingly open up to another and increase their prosperity as a result.