Hannes Richter

The New Gold Rush of Markets

Hannes Richter

Before the fall of the Berlin Wall, people behind the Iron Curtain looked back on decades of dismal, grey stores with empty windows and little to buy. With the momentous turn of events in the early 1990s, hoards of Czechs, Slovaks and Hungarians streamed across the borders into Austria, eager for Western goods after so many years of doing without, preferring shopping sprees to visiting Vienna's cultural treasures.

Much has changed since then. Today, strolling through Prague, Zagreb or Budapest, you see Austrian brands everywhere, from Billa supermarkets to Palmers lingerie. In fact, shopping in these Eastern European capitals is not much different from shopping in Vienna.

One main reason for this is that for the past decade, Austrian companies have ventured into the new "gold rush" of markets east and south of their borders. With strong ties to Central and Southeastern Europe since the days of the Austro-Hungarian Empire, Austria has held an historic position as a hub between Eastern and Western Europe.

But if this venture has proved immensely successful for Austria, (two-thirds of the Vienna Stock Exchange do business there), there are many other foreign countries whose fund managers have been hesitant to take their money east, sceptical of the quality of the young capital markets and their companies. "I have little faith in Eastern European companies because I know very little about them," admitted a manager at Henderson Global Investors. So, in the meantime, to avoid taking the political risk through direct investment, they are discovering Austrian companies as a "safe" way to invest in the upswing development in Central and Eastern Europe, making it an established notion that "the road to Eastern Europe leads through Austria."

Indeed, the country is the gateway to a market with a forecast to grow twice as fast as Western Europe in 2005. Before 2002, the Austrian stock market was regarded by international fund managers as a hinterland full of small and illiquid stocks. Today the share of international sales on the exchange has doubled to 40 percent, doubling also market capitalization and tripling monthly trading volumes.

Increasingly, Austrian companies are looking for opportunities not only in those countries which achieved membership in the EU in 2004, like the Czech Republic, Hungary, Slovakia and Slovenia, to name a few, but also in countries like Bulgaria and Romania that are expected to join in a few years.

Since Europe's biggest problem is growth, "Austrian stocks give you access to the only region of Europe that is growing fast." With Eastern Europeans catching up on taking out loans and mortgages, buying into private pension funds and using credit cards, it is Austria's gateway position to these markets that makes this trend the one to watch in 2005.