Central European stock markets may follow Asian model

Excerpts from a report in The Wall Street Journal Europe: In the first half of 1996, the Central and Eastern European (CEE) stock exchanges registered the highest incomes in the world. Combining the stock exchange boom with significant economic growth leads some analysts to think that the CEE region could follow the Asian growth model (where stock prices grew 350 percent between 1989 and 1993). According to ING Barings London, the CEE stock exchanges have the potential to grow by another 100 - 200 percent in coming years.

This year in U.S. dollar terms, the Budapest stock exchange grew 87 percent, the Warsaw exchange by 54 percent, Prague by 35 percent and Moscow by 105 percent (the Bratislava Stock Exchange grew 39 percent last year).Industrial capacity and a highly qualified labor force are advantages, some analysts say, which are not found in southeast Asia.

The price/earnings ratio in Poland is 9.3 on average, in Hungary 8.3, in Slovakia 9.0 and in the Czech Republic 12.1. By comparison, the price/earnings is 17.4 in the USA, in Germany 20.5, in Malaysia 20.8, Taiwan 20.5 and in South Korea 13.1.

Some economists say the CEE region currently has a better position relative to southeast Asia, where in the past four months export growth has slowed down. Opinions are emerging that the development of the CEE markets will rise at the expense of East Asia. A typical obstacle for CEE capital market growth, though, is the lag in local accounting. Accounting reports provided in accordance with international accounting standards are very rare.

The situation is best in Hungary (stock exchange with a market capitalization of $4.2 billion), and thus this exchange seems closer to international stock exchange standards. Currently, the highest foreign investments go to Poland, with a market capitalization of $2.9 billion. Slovakia has the smallest stock market in the region.

According to Fleming Investment Management London, the Czech and Slovak stock exchanges are likely to grow less in a boom but fall less in a decline.

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