The rally in central and eastern Europe’s equity markets will continue this year if the oil price remains above $70 a barrel, say analysts at UniCredit. Relatively cheap valuations too should continue to attract investors.
The MSCI EME Index is up 51% in the year to date and a stunning 98% since March 2, when it reached its low for the year. Turkey and Hungary, together with the Czech Republic, have led the turnaround, with financials the best-performing sector, although these markets might be running out of steam.
Instead Mark Robinson, head of equity research at UniCredit, reckons that continuing good performance in the region will be driven more by Russia and, to a lesser extent, Kazakhstan especially if the oil price climbs above $70 a barrel. A high oil price could spur an even bigger rally in emerging Europe equity markets given the disproportionate influence of commodity stocks in the region.
"Oil and gas stocks account for more than 50% of the region’s market capitalization, so the sustainability of the rally is closely linked to commodities," says Robinson.
Valuation gap
Another reason why the region is attractive is because it is cheap relative to other emerging markets, adds Robinson, especially the oil and gas sector.