Investors in a Low Start for the Markets of New Europe

Private investors are preparing to increase their investments in the markets of emerging economies, including New Europe, given their strong growth and continuously low interest rates in developed markets, stated the Institute of International Finance (IIF).

The current increased inflow of capital from private investors into New Europe is attributed by the IIF to the easing of concerns regarding the future of the euro. Following last year’s somewhat weaker inflow, New Europe could benefit from further calming of the debt crisis in the eurozone, they emphasize.

The primary public debt market in New Europe reached record levels last year, strengthening by 30 percent compared to 2011, which was also a record year.

The capital inflow to the region last year decreased to $193 billion, compared to $210 billion the previous year. This year, however, it is expected to grow to $220 billion, and reach $237 billion in 2014, according to IIF forecasts.

In a new report, they also predict that the inflow of private capital into emerging economies in 2013 will rise to a total of $1,118 billion, which would be an increase of 3.5 percent compared to the estimated $1,108 billion for 2012.

In the following year, the inflow is expected to continue to grow and reach $1,150 billion, IIF forecasts.

In the past, large capital inflows into emerging markets have caused problems, prompting currency appreciation in developing countries that heavily rely on exports, and fueling fears of currency wars.

Meanwhile, a number of central monetary authority officials have warned of this threat, including the governors of the German and British central banks.

Leading wealthy economies, on the other hand, are keeping interest rates at historically low levels and are taking additional measures to strengthen the growth trend. The latest example is Japan, whose central bank today announced a program of unlimited asset purchases, which essentially means printing fresh money.

“Monetary conditions in developed economies remain extraordinarily accommodative, which, along with favorable conditions for growth in emerging economies, is the main reason for the significant surge in investment during 2012. We expect this trend to continue in 2013,” states the IIF.

However, they warn that the trend of declining interest rates, although they are likely to remain historically low in major economies, could reverse in the short term.

With over 450 members, the IIF is the largest international lobbying group for financial firms in the world.