By Axel Reiserer
A new report, concluded before the coronavirus crisis hit the global economy, finds growing investors’ trust in the 38 economies on three continents where the EBRD currently invests.
This was demonstrated by a continuing rise of investment which increased from US$ 222.0 billion (managed by 1,748 individual firms) in 2017 to US$ 249.3 billion (managed by 2,208 individual firms) by Q2/2019, according to “The Investor Base of Securities Markets in the EBRD Regions”, published Tuesday, March 31, 2020.
Many investors interviewed for the report noted clear improvements in comparison to the first study, which was also conducted by the EBRD and IHS Markit, a global information provider.
While the short-term impact of the covid-19 crisis is already affecting the global economy, medium- and long-term changes will potentially bring many EBRD countries into the focus when investment decisions are being made.
The report analyses crucial factors such as ease of trading, market capitalisation and infrastructure, the free-float and liquidity status of issuers, the number of listings and standards of corporate governance and transparency, as well as the wider context.
Investors emphasised the importance of having a broad investment universe, so as to access more opportunities in the search for returns, particularly in a low-interest-rate environment.
As markets continued to open up and deepen, the number of attractive investment opportunities grew.
Diversification was highlighted as particularly relevant in 2019, with a number of investors concerned about a global macroeconomic slowdown and looking to enter new markets to hedge their portfolios or otherwise identify individual opportunities.
Markets with global export sectors, perceived as removed from regional consumption trends, were particularly popular.
Respondents cited a number of topics that would increase the attractiveness of the EBRD regions.
Interviewees noted that high growth rates in south eastern Europe, reforms in Central Asia, the potential for “catch-up” in eastern Europe and low valuations in the southern and eastern Mediterranean (SEMED) region were key drivers.
They also cited attractive demographic trends in Turkey (and in the wider BRICS countries – Brazil, Russia, India, China and South Africa), high dividends in Russia, the broadening of central European stock markets and the liberalisation of formerly closed-off economic systems across the EBRD’s regions as key factors that would increase attractiveness.
While investors described a multitude of positive changes, they also identified the risks they continue to face.
Market participants remain concerned about regulation, corporate governance, freedom to conduct business, liquidity, political uncertainty, poor execution of intended reforms and a global macroeconomic slowdown.
Investors also noted that political trends in Europe were fuelling ever more uncertainty. They underlined the risk of countries not completing planned reform packages and reverting to old ways.
Investors also voiced concern that certain administrations might roll back labour-market reforms or anti-corruption laws and lessen the independence of key institutions.
While the wider political environment is seen as increasingly challenging, investors also noted a marked improvement in corporate governance.
More than 70 per cent of the those interviewed for the report regard Environmental, Social and Governance as an important factor of investment decisions in the EBRD regions, an increase by 14 per cent from the survey in 2017.