• York Investment & Finance

Global Markets Overview: Eastern Europe

By Julia Solecka, Analyst at the York IFS Global Market Telegraph

Poland and Hungary continue their stand and maintain their veto on the EU budget, while Russian stock exchanges enjoy an influx of new retail investors.

European stocks put on a steady front as we entered December, despite the looming threat of a no-deal Brexit as well as the increasing number of Covid-19 cases. Europe passed 15 million cases in the latter half of November with Eastern Europe accounted for around 5 million, as Russia was overtaken by France to become the worst-affected country in the area.[i] Lithuania was also bearer of bad news as 22 dead mink tested positive for the virus, with France and Poland finding their first mink cases in late November. This followed the mass culling of all farmed mink in Denmark, after discovery of a mutated strain with reduced sensitivity to antibodies threatened the efficacy of vaccines being produced.[ii]

Eastern European markets looked to be a mixed bag in the last couple of days as investors weighed in on the budget veto, now dominating the outlook instead of the pandemic.[iii] Main indexes of exchanges in Prague, Budapest, Warsaw and Bucharest reached highs not seen in months following reports of vaccine trial successes. The Warsaw Stock Exchange’s WIG index has risen 12.41% in the past month, with Budapest’s BUX ending the third week of November up 2.33%.[iv] Russia has also enjoyed an influx of home retail investors entering the stock market for the first time, with the number of individual investment accounts increasing 2.5 times and reaching 2.9m in comparison to September last year.[v] To the dismay of the Russian Central Bank, investors have favoured US tech stocks, investing “a bit more” into foreign companies than Russian. Sergei Shvetsov, the CB’s first deputy chairman, urged brokers to prioritise and primarily offer Russian stocks to retail clients, pointing to the high dividend yields in a bid to retain money for the home economy.[vi]

Poland and Hungary remain united in their veto on the EU Covid-19 fund, edging the bloc closer to what many fear will be an EU crisis. Ludovic Orban, the Romanian PM, has criticised the stance to be “against the whole of Europe”, warning it is in the best interest of the union, as well as both Hungarian and Polish citizens, for an agreement to be reached sooner rather than later.[vii] The largest ever stimulus package is to include €1.8 trillion to build a “greener, more digital and more resilient Europe” following the pandemic by aiding recovery and modernisation through research and innovation while staying true to fighting climate change, protecting biodiversity and gender equality.[viii] The two countries — neither willing to accept the EU proposals without the others’ consent — recently put forward their own way for breaking the deadlock: limiting any rule of law conditionality tied to the budget and further discussion of any such links. The proposal is unlikely to be favoured by the bloc with many countries, such as the Netherlands, having advocated the rule-of-law provision as being the basic minimum necessary to protect the main values of the EU. Should no unanimous decision be reached by the end of this year, the EU will act on a provisional budget, leaving many countries without the funding they desperately need following the damage caused by the pandemic. The extreme fallback option being considered by Brussels is a recovery fund totalling €750bn without the participation of Hungary and Poland to tide the rest of the union over until the two countries drop their veto.[ix]

More than 300 people have been arrested during the latest demonstrations in Belarus.[x] With over 100 days since the election, and despite both opposition supporters and the EU refusing to recognise the result, Alexander Lukashenko remains in power as thousands of citizens took to the street to continue their protests. This comes as the president, who has remained in power since 1994, has hinted that he would be willing to finally step down — with the only catch being a change in the constitution. The changes would result in any future President having considerably less power, which has been backed by Russia but dismissed as purely tactical by main opposition leaders.[xi]

The EU recently published its draft guidelines under the EU Green Taxonomy, a classification tool to help investors, companies and financial institutions understand which economic activities are environmentally sustainable. Noticeably, nuclear power is absent from the taxonomy, despite the progression many EU countries have seen in their nuclear energy expansion plans.[xii] Poland’s planned move away from coal has steered it towards the market, having recently announced the total estimated costs of building 6 nuclear reactors of 6-9 gigawatts capacity over a 20-year timespan to be around $30bn.[xiii] Similarly, Hungary’s energy regulator has issued a pre-construction licence for Paks II, an expansion of 2 new VVER-1200 reactors at the existing Paks nuclear power plant site.[xiv] With the European Commission approving the $8bn nuclear power plant expansion in Romania,[xv] nuclear power looks to be the main contender in helping coal-reliant European countries to meet the EU’s green targets.

This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 13.1 in early December 2020.

Reference list: [i] https://uk.reuters.com/article/uk-health-coronavirus-europe-cases-idUKKBN2801Q6 [ii] https://www.reuters.com/article/us-health-coronavirus-lithuania-mink-idUSKBN2861O5 [iii] https://finance.yahoo.com/news/cee-markets-currencies-stocks-mixed-095204666.html [iv] https://www.intellinews.com/central-southeast-europe-stock-markets-jump-in-anticipation-of-covid-free-future-197421/?source=hungary [v] https://intellinews.com/russian-retail-investors-piling-into-the-stock-market-for-the-first-time-but-cbr-worried-about-rising-risks-197717/ [vi] Russia central bank urges brokers to prioritise Russian stocks | Reuters [vii] https://www.ft.com/content/ed141f4f-24b4-4173-a739-f4686bc55a57 [viii] https://ec.europa.eu/info/strategy/recovery-plan-europe_en [ix] https://www.ft.com/content/a9aeab13-541a-4668-959b-d9136fae2c03 [x] https://www.euronews.com/2020/11/30/more-than-300-people-arrested-in-latest-belarus-demonstrations [xi] https://www.bbc.co.uk/news/world-europe-55108312 [xii] The competition is on for Eastern Europe’s nuclear power market (sustainability-times.com) [xiii] Poland sees cost of building 6-9 GW of nuclear energy at $30 bln | Reuters [xiv] Hungary's Paks II project receives construction approval : New Nuclear - World Nuclear News (world-nuclear-news.org) [xv] EC approves USD 8 bln nuclear plant expansion in Romania | Romania Insider (romania-insider.com)

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