Investors returning to Baltic stock markets

TALLINN - Swedish and Scandinavian investors are becoming more optimistic about the Baltic States, driven by Estonia’s prospects of joining the eurozone in 2011, and the region’s improved international credit ratings, said Marcus Svedberg, chief economist for the Swedish investment company East Capital, reports Nozare.lv. However, Svedberg warns that the Latvian economy is the last to recover, out of the three Baltic States, who in turn are recovering more slowly than other Eastern European countries, especially those who are not subject to conditions imposed by the International Monetary Fund.

Other Eastern European countries who are not bound by the IMF will start to recover in 2010, and will experience normal growth next year. This year will be a year of zero growth for the Baltic States, recovery will come in 2011, and it is possible that the situation will normalize in 2012, said Svedberg. Latvia is seen as having the economy which has most lost its equilibrium, where the recession is deepest and recovery is coming most slowly, he said.

As a sign of the return of interest of Scandinavian investors to the Baltic States, the economist mentions the unusually high interest this January in shares in the East Capital investment fund Baltic Capital, which led to the closing of the short-term fund due to an overflow of incoming money, which it was not possible to invest in Baltic States’ stocks and shares.

Investor interest grew rapidly in January 2010. There were two reasons for this. First of all, demand had built up for investments in the Baltic States. However, the initial reason for the ‘boom’ was the unexpectedly good economic recovery. The figures were not excellent, but things were better than previously forecasted. Now it seems that Estonia and Lithuania are experiencing minor economic growth. The speed of the economic downturn in Latvia will not be as fast as before, and some growth is possible, or things could remain steady, said Svedberg.

The East Capital homepage reveals that the Baltic Fund has invested in just one Latvian company - the pharmaceutical manufacturer Grindeks - while the fund’s remaining assets are invested in Estonian and Lithuanian companies.
Asked about what kind of investors have contributed to the Baltic Fund, Svedberg indicated that this covered a wide range, not only high-risk speculators, but also pension funds, banks, institutions and private individuals.

These investments into the Baltic Fund however represent dubious inflows. They are not investments into ‘bricks and mortar,’ or into factories, creating jobs or bringing in technology, that define long term investments. It is rather ‘investment’ into shares, the so-called ‘hot money’ that flows into emerging market stock markets when times are good, and rush out when things turn sour, without bringing in any real solid investment or capital into the country.