• York Investment & Finance

Global Markets Overview: Eastern Europe

Updated: Sep 11, 2020

From 27 July to 10 August 2020

Markets across Eastern Europe took a tumble this week following a loss in investor confidence among a sharp resurgence of Covid-19 cases across the continent, with the biggest drops coming from the Czech Republic, Poland and Estonia at -3.63%, -2.33% and -1.95% respectively. “Lesser-known coronavirus success stories” [1] across the southern and eastern parts of Europe suffered a disproportionately large increase in recorded cases, with Romania now at a daily average of 1,000 new cases a day – the highest in both Central and Eastern Europe [2].

The resulting prospect of a slower economic recovery has worked to weaken demand for Russia’s Urals oil, down to $42.65 on Wednesday, with Russian oil output falling 16% throughout July [3]. Despite such volatility, MOEX outperformed its peers, up 1.69% week on week, and continuing the month-long upward trajectory (up 80.72% from its lows mid-March). Largely fuelled by a campaign of rate cuts by the central bank, Russian citizens tunnelled their savings into stocks and bonds, unimpressed by the current 4.25% interest rate benchmark (following the fourth cut this year and a record low). The introduction of 13% tax on interest gained from bank deposits above $14,000 [4], set in place in March, also helped to increase amateur investor interest in the index, with a record 821,500 retail investors executing at least one trade in July [5].

Using the past few months of the pandemic to continue the development of their digital currency project, the Bank of Lithuania has announced the pre-sale of LBCOIN - the first digital coin to be issued by a central bank. Carrying an unconventional nominal value of €19.18 (to commemorate Lithuania’s 1918 act of independence), LBCOIN aims to “engage... the youth in coin collecting” rather than be used as payment. Based on blockchain technology and consisting of six digital tokens and one physical collector coin, it’s an ongoing project used to gain experience within the field of digital currencies. Central Bank Digital Currencies, and how governments choose to adopt this fintech innovation, will play a huge role in the development of privacy and monetary sovereignty [6] in digitalised societies, with over 80% of 66 central banks surveyed admitting to currently exploring the development a CBDC [7]

Over the past 5 years, 5 Central and Eastern European start-ups have become unicorns (companies with a valuation of over $1bn), namely Poland’s Allegro, Romania’s UiPath and Avast. Now, the newly emerging start-up scene in Eastern Europe is slowing down, with private investors backing out amid the continued uncertainty. With the pandemic bringing forward as many challenges as opportunities for entrepreneurs, start-ups in Slovakia, Hungary and the Czech Republic are now increasingly relying on publicly-backed venture firms to fund their newly formed companies [8]. While private investors typically offer better valuations, publicly funded firms are able to offer stability and liquidity during times of crisis.

By Julia Solecka - Analyst at York IFS Global Market Telegraph

This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 4.1 in early August 2020.

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Reference List

[1]. https://www.zmescience.com/science/coronavirus-take-two-europe-29072020/

[2]. https://www.ft.com/content/bcddc297-b7f2-444d-908f-54e8ce6f4f98

[3]. https://oilprice.com/Energy/Crude-Oil/Russian-Oil-Output-Falls-16-In-July.html

[4]. https://www.ft.com/content/b2d2d40b-d623-4687-a7e5-c365c434601a

[5]. https://mondovisione.com/media-and-resources/news/retail-investors-opened-25-million-individual-investment-accounts-with-moex/

[6]. https://cointelegraph.com/news/cbdc-is-the-most-important-trend-in-payments-says-visa-crypto-chief

[7]. https://www.euronews.com/2020/07/09/explainer-what-is-lbcoin-the-new-lithuanian-state-backed-cryptocurrency

[8]. https://uk.reuters.com/article/us-health-coronavirus-cee-startups/startups-in-eastern-europe-tap-public-money-as-private-investors-bail-idUKKCN24W0TN


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