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Go East, Young Man!
Forecast for Europe
by Michael Graser; Taipan Research Department, Eastern Europe Desk
Remember the heady days of Tokyo's Nikkei, right before the Japanese economic bubble burst?
Or how about Hong Kong in the early nineties — when speculation on the Chinese takeover sent the Hang Seng index soaring? How about China itself? Two million Chinese at the verge of buying burgers and Beemers! How about Russia? Malaysia? Indonesia?
Not a day went by, it seems, without U.S. investors being urged to get their piece of the international pie... stake a claim in emerging markets... clean up on global prosperity and free markets. As a Taipan member, you were at the cutting edge of each wave... positioning yourself for profits before the investment public came flooding in to push up stock prices.
And in most cases, you walked out with a handsome chunk of international profits.
But if you happen to be located in the United States... and about 75% of the Taipan Group's members are... you may have noticed it yourself: Over the past 3 years, foreign markets have all but disappeared from the radar screens of the financial media and mainstream investors alike.
Which doesn't mean there's no money to be made. Especially in some of the Eastern European countries now in the process of gentrifying themselves. Like Poland, Hungary and Czech Republic, which are the most interesting countries in Eastern Europe for profit-hungry investors.
Here's why. The economies of these countries are growing rapidly. The political situation is stable — especially compared to countries like Russia. And they have an economic carrot dangling right in front of their noses to provide the necessary forward momentum: the fantasy of becoming a member of the European Union (EU).
It had to be EU
The current doldrums of the Euro, the EU's artificial "single currency," are obscuring the fact that for new and future members of the Union, this "funny money" will bring a lot of economic advantages. It should help to boost investment across the economies of its members. A single currency will create a zone of economic stability and low inflation that will provide a stable framework in which companies can plan and invest.
The single currency complements Europe's Single Market. Reduction of transaction costs, less uncertainty about exchange rates and greater price transparency will lower costs and increase competition. The elimination of currency worries will have a direct impact on investment.
The increase in trade that should follow from a larger, more integrated and efficient market will also improve opportunities for investment.
State of the Union
Throughout the year 2000, the economies of the EU member countries developed very positively. The farther removed a country was from meeting the criteria required for full convergence — and the faster they moved towards them — the better its stock market developed. (See Italy, Spain and Portugal.)
Even if you don't believe in the EU — and there's plenty of Europeans who don't — there is more than one reason to be bullish: high growth, falling interest and inflation rates, stabilizing currencies, further privatization of state-owned enterprises, and a strong desire to attain the luxury the West already enjoys all provide great conditions for the European stock markets.
Some leading investment banks even believe Poland and Hungary will soon rank among the fastest growing markets in Europe.
Just compare the market capitalization of Poland (US$26.7 billion), Czech Republic (US$7.4 billion), and Hungary (US$14. billion) with a single U.S. blue chip like Microsoft (US$369 billion as I write this — but heck, the way the U.S. market has been going recently, by the time you read this, it may be either half that amount, or double!).
Just imagine: for the value of Microsoft you could buy all publicly traded companies in these three countries eight times over and still have enough money left to get tickets to a major league baseball game!
Many European investment bankers believe the market cap of these countries will reach the European level as soon they are members of the EU.
Let's have a closer look at what's going on in these countries.
Please read on...
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