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. Last Updated: 07/27/2016

Boom in Investment Seen for East Europe

PRAGUE -- Institutional investors, flush with money and confidence following the U.S. stock market's 1995 bull run, should breathe new life into the listless markets of Eastern Europe this year.


With the Dow Jones appearing to be at, or near, its peak after U.S. shares gained 34 percent last year, analysts say Eastern Europe's undervalued shares and improved growth prospects offer solid capital gains potential.


The Dow touched a high above 5,200 points in mid-December but has since dipped back under 5,100.


"This year will definitely be a year where you see a strong interest in the whole region," Ralph Lazar, an economist with ING Barings, said. "In the big financial centers, there's a strong awareness of where Eastern Europe is in the transition process, and the signals we see coming out are very positive."


Jay King of the Prague-based brokerage Wood and Company added: "Emerging markets, as an asset class, did horribly last year and that to allocators is a leading indicator of their future performance."


While the past is not necessarily a crystal ball to the future in the volatile world of investment, analysts say there is more to base their bullish prediction on than history alone.


A recent report by ING Barings to investors on expected real GDP growth around the globe showed Central and Eastern Europe should see greater economic expansion in 1996 than other emerging-market favorites Latin America, Southern Africa and the Mediterranean region.


And while the post-communist economies are not about to pounce like an "Asian tiger," real GDP growth in the region is forecast to average about 5.5 percent annually over the next five years, Lazar said.


Czech brokers are predicting strong gains on the back of foreign buying, especially of blue-chip issues. The Prague Stock Exchange, which lost one-quarter of its value in 1995, jumped some 5 percent in the first week of trading.


In Warsaw, sentiment is running high where a disappointing end to a 1995 marked by low activity and falling prices, has already given way to revived foreign interest and is poised to remain on Western funds' lists for the rest of the year. Analysts say that recent gains on large volumes of some blue-chip stocks such as Bank Przemyslowo-Handlowy, Bank Slaski, cement maker Gorazdze, and Stomil-Olsztyn tire makers indicate foreign buying.


Interest rates are another key factor seen boosting the region. Each time the U.S. Federal Reserve or the Bundesbank cuts rates to spur their economies, investors find a reason to look elsewhere to capitalize on higher bond yields.


"Interest rates in the major economies, like Germany, the U.S. and the German-mark belt are declining, so professional investors are looking for alternative opportunities," said Tamas Simonyi, managing director of Bank Austria-GiroCredit Befektetesi Rt in Budapest.


Croatia too, is expecting an investment boom this year following the recent Dayton peace accords, but the majority of funds are expected to be in the form of commercial lending and direct investment in Croatian companies.


Some of the direct investment will be made through the government's continuing privatization program, which is expected to focus on utilities this year.


However, analysts do not expect foreigners to rush into Croatian portfolio investment because the Zagreb Stock Exchange and the OTC market in Varazdin lack liquidity and regulation controls.


Neighboring Slovenia may be one of the few countries in the region where the short-term outlook is not quite so rosy.


Foreign investment in Slovenia is expected to jump to $150 million in 1995 from $83.7 million in 1994, but experts say that foreign investment growth may not be so buoyant in 1996.


The huge Slovenian privatization program involves about 1,400 companies. To date, however, only 412 of these have been privatized. "We cannot expect a boom of foreign investments before the massive privatization process is finished," said Lilijana Figar of the Institute of Macroeconomic Analysis and Development.