Erste Group Research expects a solid development for Central and Eastern Europe (Czech Republic, Hungary, Poland, Slovakia) in 2016, even though economic growth will slow down slightly relative to the past year. The decline is due to the fact that many countries seized their last opportunity last year to call on money from the EU programme of 2007-2013. In Hungary and the Czech Republic this effect will be noticeable the strongest, given that these countries had recorded the highest influx of EU funds. From today’s perspective, the refugee crisis will have hardly any effect on said countries.

The deterioration of the global economy has so far had a negligible impact on the CEE region. Neither the economic slowdown in China nor the VW scandal has caused the production figures or other leading indicators to fall. The region – the biggest hub of automotive production in Europe outside of Germany (every fourth car manufactured in the EU is assembled in the CEE region) – had been expected to be more badly affected by the VW scandal. But so far that does not seem to be the case. It seems to be Volkswagen itself that is bearing the brunt in the form of fines it has to pay. The demand for VW cars is not expected to drop. Overall, economic growth in the CEE region is more resilient vis-à-vis external conditions. The growth driver in the CEE countries is currently not external, but domestic demand.

Increased geopolitical risks in Turkey and Russia

Turkey has just had important elections, while in Russia parliamentary elections will be held in September. The political risk is relatively low, from a local perspective. However, the geopolitical risks remain elevated: especially the situation in Russia and Turkey and, in a broader perspective, Syria remain tense. In addition, the uncertainties with regard to the relationship with Ukraine remain the same. The current EU sanctions against Russia have been extended by six months to 31 July 2016.

Very mixed performance on the stock exchanges again

Stock exchanges delivered very mixed performances. The Russian stock exchange was up an outstanding +26%, and Hungary was the top performer at +44% last year. At +11%, Vienna achieved a relatively decent result and clearly outperformed the EuroStoxx 50 index (+4.9%) and the S&P 500 index (-0.8%).

Stock exchange Index Index performance in local currency
since 30.12.2014 – 30.12.20151
Austria ATX-Index (EUR) + 10,92%
Poland WIG-Index (PLZ) - 9,62%
Czech Republic Prague SE (CZK) + 1,02%
Russia MICEX-Index (RUB) + 26,12%
Hungary BSE-Index (HUF) + 43,81%
Romania Bucharest-BET (RON) - 1,11%
Turkey ISE 100 (TRL) - 12,9%
USA S&P 500 Index (USD) - 0,82 %
Eurozone EuroStoxx (EUR) + 4,85%

1 Source: Bloomberg; 30. December 2014 – 30 December 2015

Risks caused by the US monetary policy, the oil price, and geopolitics

The risks remain similar to those in the past years. The past has shown that during periods of interest rate hikes in the USA, volatilities can rise, which might affect Turkey in particular. Russia remains unsafe as well due to the problems with Ukraine (EU sanctions) and external factors such as the oil price. Also, the geopolitical situation depresses the investors’ assessment.

Differentiated outlook

According to Erste Group Research corporate earnings growth has weakened in Central and Eastern Europe. The situation in Poland should be monitored particularly closely: the stress the Polish banking sector is exposed to comes with clearly negative ramifications for the earnings outlook. What we therefore see for the region is a mixed picture. For Hungary, and to a slightly lesser extent, for the Czech Republic, the earnings outlook is positive. For Turkey and Russia, however, the degree of uncertainty is considerable. A possible solution to the Ukraine conflict would constitute a great relief for the entire region – but unfortunately, it is not in sight.

Paul Severin
Member of the board ÖVFA
Investment Communications
Erste Asset Management
13 January 2016


Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.