Key research evaluates the Russian risk in Central Europe

Citation

(1999), "Key research evaluates the Russian risk in Central Europe", European Business Review, Vol. 99 No. 1. https://doi.org/10.1108/ebr.1999.05499aab.001

Key research evaluates the Russian risk in Central Europe

Key research evaluates the Russian risk in Central Europe

Dresdner Kleinwort Benson (DrKB) today announced the release of a 48-page research note In Search of Shelter on the opportunities for equity growth in Central Europe, evaluated alongside the impact of the Russian crisis.

Dresdner Kleinwort Benson analysts believe key Central European economies are set to enjoy premium growth in a slowing world economy. The research suggests new buying opportunities resulting from the collapse of equity prices, and strongly reiterates the need to concentrate on high-quality companies, namely those with strong balance sheets, good cash flow and dependable sales in non-cyclical sectors.

Dr KB considers Central Europe's high growth rates, determined as they are by structural reform, to be largely intact. Hungary and Poland spearhead analysts' optimism on account of the countries' supply-side reforms, with privatisations and foreign companies providing capital and management for corporate restructuring. The report highlights eight high-quality stocks which the analysts believe represent good value at current levels; all have very limited, if any, direct exposure to Russia. The stocks are: Danubius, Démász, PBK, Prokom, Matáv, POL, Pliva and WBK, and are believed to represent some of the best opportunities in the Central European region.

This research also reviews four other companies: OTP, Richter, Surgutneftegaz, and Vimpelcom, whose shares, DrKB believes, are likely to outperform in the event of Russia showing signs of emerging from its crisis. DrKB analysts regard such a development as highly unlikely in the short term.

However, the sharp falls last week in Latin American markets serve as a stark reminder that Central and Eastern Europe is vulnerable to contagion from turbulence in emerging markets worldwide. Risks of currency devaluation in the region also remain, although DrKB views recent weakness in Central European currencies as sentiment-driven and probably transitory. The research points to higher perceived risk in the region causing higher financing costs, rendering strong finances a prerequisite for investing in companies. However, Russia's collapse and the expectation of slower growth in the West are also evaluated as the factors behind DrKB's overall cut of 1 per cent in 1999 GDP forecasts for Central Europe. The "CEE3" economies (Poland, Hungary and the Czech Republic), DrKB analysts believe, are still set to grow 4.5 per cent next year, representing an attractive premium in the context of slowing global growth.

Andrew Thomson, Central and Eastern European research co-ordinator, commented recently:

We believe strongly that the countries of Central Europe that have committed themselves to structural reform are well positioned to continue their growth. This process will continue to create quality investment opportunities in the region.

Jamie Stevenson, Head of Global Research Product said recently:

This thorough study of company risk and potential in Central Europe illustrates the commitment of Dresdner Kleinwort Benson in maintaining a high-capacity research presence in this region. We shall continue to provide our clients with a clear, research backed view of sector and company prospects in Central and Eastern Europe.