ING IM bullish on growth in emerging Europe
ING Investment Management sees investment opportunities in the Emerging European sustainable growth story.
The asset manager, based in The Hague, is confident that emerging European countries, despite their regional differences, are in a position to benefit from regulatory enhancements, economic liberalisation and privatization initiatives.
The improved business environment will in turn lead to corporate profits and cash flows, helping business development and boosting shareholder returns, ING expects.
ING IM is not alone in its enthusiasm for Eastern Europe. Other European countries have followed suit. Austria is one of the pioneers in the matter.
Some of Austria’s most prominent corporations, which together comprise more than half of the total market cap of the Vienna Stock Exchange, have recently launched an initiative to encourage Austrian firms to put their money into central and eastern Europe.
The initiative, dubbed 21st Austria, is driven by 20 prominent Austrian public companies, together with the Austrian National Bank and the Vienna Stock Exchange. Its aim is to promote investment by Austrian companies into the regions.
The primary factor making the region attractive is the robust growth expected in the next few years. By 2016, the growth rate is forecasted to reach 20%. This is more than double the expected figure in continental Europe (8%) and well above the 15% expected in the US.
Nathan Griffiths, senior investment manager at ING IM, says: “From a growing middle class in Russia to the young and vibrant population of Turkey, we see an environment not weighed down by fiscal uncertainty and austerity initiatives demanded by Western Europe. There is also a solvent financial system, strong government finances and growing credit penetration, which will bring sustainable growth.”
ING IM expects the growing middle class to evolve as more jobs are created, wages grow, wealth spreads and consumer spending begins to reflect the patterns seen across the developed world.
Griffiths continues: “Turkey’s young population underpin a strong domestic growth environment while geographic proximity to nearby markets across the Middle East and Africa offers cross border potential. Turkey also benefits from a developed and well educated corporate sector.
“Russia is a beneficiary of Asian prosperity and growth as a leading producer of energy and agricultural products. Also key but less appreciated, perhaps, is the growth of the Russian middle class that will drive domestic consumption and credit growth. Reform of financial markets will increase foreign capital and investment. Russia will become a better place to do business as bureaucracy and corruption decline.
“Central Europe continues to benefit from convergence with the EU but with a stronger financial system and solvent fiscal position. While austerity in Western Europe will inevitably lead to slower growth and limit investment spending in the region, longer term trends in Central Europe provide interesting investment opportunities.”
ING IM expects the Eastern European market to remain sensitive to global economic developments, largely due to the region’s need for capital and strong ties with commodity movements.