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64 Opinion
bne November 2020
lending has fallen precipitously and is likely to remain subdued until this cap is removed. While certainly not a free-market principle, it will be effective in moderating credit growth and subduing inflation, allowing the CBU to potentially cut the policy rate yet further, a situation, which would only make investing into the equities market that much more attractive.
What does all of this mean for the Tashkent Stock Exchange and the potential for listed equities? From an opportunity cost perspective, local individuals and corporations who currently prefer to invest their risk capital into term deposits can now receive significantly higher double-digit dividend yields from a multitude of listed equities. A typical excuse one will often encounter from locals in Central Asian countries when discussing the benefits of investing into exceptionally cheap listed equities with double-digit dividends is that the dividends are not high enough to justify the perceived risk of owning them, relative to term deposits. This is due to many local investors not understanding the risk-reward of investing
COMMENT:
Why the Balkan region should be on investors’ radar screens
Tim Umberger, deputy head of Eastern Europe investments at East Capital
Despite short-term volatility caused by the coronavirus (COVID-19) pandemic in 1H 2020, the Balkan region could be one of the relative winners globally in the post-COVID era.
Equity investors should acknowledge that the region is on course to receive one of the largest stimulus packages globally (equivalent to 17% to 35% of GDP) through the facilities
of the EU Recovery Fund and budget, while it is also set to benefit from the key post-COVID economic and business trends. At the same time, regional markets offer some of the most attractive valuations globally, trading at only 6-10x P/E for 2021e, significantly lower than the 13x for MSCI Emerging Markets and 15x for Euro Stoxx 50.
EU funding – supporting strong economic growth
in Southeastern Europe
Facing the largest economic drop in post-WWII times, European governments agreed to implement an extraordinary set of measures, including the establishment of the EU Recovery Fund, amounting to €750bn, aiming to facilitate economic recovery across the European Union.
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in equities and view them simply as another fixed-income-type product where cash flow is all that matters. However, today even the relative cash flows favours investing into Uzbekistan’s listed equities.
The stage is now set. It is likely only a matter of time until the increasing foreign participation in the stock market and/or locals seeking high yield investment opportunities, triggers
a more rapid and profound phase of re-rating.
Tim Umberger
The fund will include €390bn in grants (the rest is in the form of low interest rate long-term loans) targeting broad infrastructure and “green energy” projects, and will be implemented through the mutualisation of debt: it will be first time in history that the EU borrows money as a supranational entity and then
uses these funds for common European purposes. As a result, Southeastern Europe (Greece, the Western Balkans) will be the key beneficiary of the EU Recovery Fund and the EU 2021-2027 budget over all, due to the size of funds’ allocation, its timing and strong multiplier effects on the economy.
In terms of size, the combined EU Recovery Fund and previously communicated EU Cohesion Funds for 2021-
2027 are massive. Bulgaria and Croatia will receive funding equivalent to 35% of their 2019 GDP, while Greece, Romania and Slovenia will get support amounting to 27%, 26%
and 17% of their 2019 GDP respectively. This means an additional 2.5% to 5% of GDP annually, a number that will be extremely supportive for the mid-term economic outlook. Our conversations with policy makers in Slovenia and Greece suggest governments will not waste any time in preparing the projects to be able to draw the majority of funding available.