Eastern Europe has managed to improve its economic fundamentals since the economic slump in 2008. Yet investors remain skittish and fear that the crisis in the eurozone might spill over to Emerging Europe.
Nevertheless, in the fixed income arena, markets have already begun to brush aside the close ties between Eastern and Western Europe, and look at the individual macro fundamentals.
Over the course of the past year, the risk perception of Europe has changed profoundly. Investors view Western European governments as riskier than their "emerging" counterparts, as shown via the iTraxx SovX indices, that track credit default swaps (CDS) on government bonds.
The CDS premia on CEE bonds have risen considerably during the recent crisis, but they are still trading tighter against the CDS on Western European bonds. At the beginning of last year, markets demanded a premium of 135 basis points from Eastern Europe.
One of the reasons is that many countries in emerging Europe were able to improve their macroeconomic fundamentals in the post-Lehman era. "Many Eastern European countries have done their homework and improved their resilience with respect to external shocks," says Niessner.
Wide current account imbalances and the reliance on foreign capital were reduced.
"One of the issues that Eastern Europe clearly does not have is the interdependence of banks and indebted sovereigns," argues Angelika Millendorfer (pictured), head of emerging markets equities at Raiffeisen Capital Management, the biggest mutual fund group in Austria.
Government debt overall has also increased after 2008, but has been kept in check by most countries. This led to the phenomenon of subsidiaries, such as Société Générale's in the Czech Republic and Romania, trading at higher price-to-book ratios than their parent company.