The development gap separating the western and eastern European regions is likely to open new opportunities in various sectors, including healthcare and financial services on the eastern European region during the medium-to-long term (5 to 15 years) investment horizon.
New analysis from Frost & Sullivan (financialservices.frost.com), Eastern European Asset Management Industry - Investment Analysis, indicates that eastern European countries should exercise caution with regard to their fiscal position and remain wary of the risk of high inflation.
"Lower penetration of mutual funds investments in household income suggests ample scope for retail investments," says Frost & Sullivan Research Analyst Kavitha Chakravarthy. "Effective marketing and awareness initiatives are likely to help asset management companies capitalize on this opportunity."
Lower net assets as a percent of GDP are indicative of the vast potential latent in the asset management industry. Central and Eastern European countries have the lowest net assets. Rising political stability, pro-market reforms, growing purchasing power, huge infrastructure spending, and EU membership make eastern Europe an attractive destination for investment. The economies of Bulgaria, Romania, Slovenia, and Slovakia are poised to grow at a positive rate, peaking during 2011 and 2012 and stabilizing thereafter.
The immediate prospects for the asset management segment look lacklustre until at least 2010, but retail investor confidence will improve during 2010. On the flip side, institutional investments such as pension funds compared to retail mutual funds are performing well owing to their long investment span and lock-in period. The eastern European countries are heavily dependent on foreign investments and encounter severe financial pressure due to dwindling FDI inflows into the economy.
The region experienced a drastic decline in foreign investments since 2007 in the wake of the lending boom and financial crisis. This had led to the deterioration of the overall fiscal position in the eastern European countries. Moreover, low market liquidity continues to concern the market. The governments of these regions are taking corrective measures.
"There is also huge pressure on the Eastern European governments to streamline their policies in order to comply with EU regulations," says Chakravarthy. "Any lapse could prove costly for the government, potentially affecting EU funding and membership."
Retail investors in Europe prefer investing in bank deposits as they offer high rates of interest. Moreover, these investors are not fully aware of the advantages offered by investment in mutual funds and other alternative investments. The high cost of trading in these regions fuels anxiety levels. Currently, investors seem to prefer investing in funds denominated in Euro, in order to eliminate exchange rate risks.
If you are interested in more information on this study, please email Monika Kwiecinska, Corporate Communications, at monika.kwiecinska[.]frost.com, with your full name and contact details.
Eastern European Asset Management Industry - Investment Analysis is part of the Financial Benchmarking in the Asset Management Industry subscription, which also includes research services in the following markets: European Emissions Trading Market, North American Outcome-Oriented Funds: Lifecycle Funds - Investment Analysis, Analysis of Active Extension or Short-enabled Investment Strategies, and European Green Investments Market. All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.
Frost & Sullivan's Business and Financial Services group serves clients around the world in all aspects of financial analysis, market research and monitoring, due diligence, idea generation, opportunity analysis, investment valuation, and other proprietary research.
About Frost & Sullivan
Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best-in-class positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best-practice models to drive the generation, evaluation, and implementation of powerful growth strategies. Frost & Sullivan leverages over 45 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from 40 offices on six continents.
Eastern European Asset Management Industry - Investment Analysis / N67D