The eyes of the world's financial markets and economies are fixed on Europe. Some predict that a failure by Germany to bail out Greece will result in the collapse of the eurozone. Others predict it will happen anyway. Right now the world is not in favor of betting on European markets staying in tact. But how is this affecting Eastern Europe? And what effect will this have on Europe's Eastern counterparts in the long run?
The Eastern European markets are currently following the trending of the European markets, responding to headlines news on Europe's financial crisis much the same way as the markets in the eurozone. That is to be expected, as most of the world's markets are doing the same. The question is whether or not they will follow the trend all the way through the demise, or will the fall of the eurozone lead to a revitalization in Eastern Europe?
Eastern Europe does have one big champion on its side: Russia. There is a growing arts movement in Russia. There are many trying to place Russia in the midst of a cultural revolution, while at the same time Westernizing its school of thought. Russians that had left out of fear are now returning to modernize their country of birth.
So what does this have to do with Eastern Europe? Eastern Europe has as much potential as the nearby 'Stans,' but with less corruption. It is much easier to gain entry to these markets and maintain a viable business model. Eastern Europe is rich in resources. Many companies, including Goldman Sachs and JP Morgan, have tried their hand at agriculture with Ukraine's famed soil. The land is rich and the people are ready to work. Also, there is a vast expanse of undeveloped, under-utilized land.
The best way to take advantage of the potential in Eastern Europe is through ETFs. Two of my favorite Eastern Europe ETFs are iShares MSCI Emerging Markets Eastern Europe Index (ESR) and SPDR S&P Emerging Europe Index (GUR). Both ETFs hold energy and utilities companies as their top holdings. Gazprom and Lukoil, both Russian companies, are top holdings for both funds. Both funds pay decent dividends and are well valued. Also, both funds are weighted heavily in Russian stocks. They do have holdings in some of Eastern Europe's smaller nations as well. ESR carries weight in Poland, Czech, and Hungary, in addition to its Russian holdings. GUR carries weight in Turkey, Czech, Hungary, and Luxembourg. Either of these ETFs would go a long way toward diversifying a portfolio. Larger companies have already begun to see the potential that Eastern Europe has to offer. Soon it will depart from Europe entirely and lay claim to its own roots.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
