By Carl Delfeld of the Chartwell ETF Advisor
The Austrian exchange-traded fund, iShares MSCI Austria (EWO) has done rather well over the past few years being favored as the best play on Eastern Europe by serving as a gateway between these fast growing emerging markets and Western European markets.
The end of the cold war in 1989 and the recent entry of many of Austria's eastern and southern neighbours into the European Union have put the this smallish country of 8 MM people country back at the heart of the continent and brings back memories of its historical role as an imperial dealmaker.
For several reasons, Austria and its exchange-traded fund has benefited more from Europe's opening to the east than any of the other older EU members, in several ways.
First, the Economist points out that its trade with central and eastern Europe (CEE) has jumped over the past decade and a half, helping to reduce its trade deficit. Second, and more important, Austria's stock of direct investment in central and eastern Europe zoomed from from almost zero in the early 1990s to nearly $28 billion in 2004, equivalent to 8% of Austria's GDP
Furthermore, while a decade ago much of its investment was concentrated on manufacturing, now the biggest chunk goes on financial intermediation, property and services. This reflects its growing role as the nexus of support services for Eastern European countries. The eastern opening, together with those of Austria's EU entry in 1995, EU economic and monetary union in 1999 and the entry of ten new EU members in 2004 have all boosted economic growth considerably and buoyed its stock market and the ETF (EWO) that tracks it.
Vienna still has the regal feel of an imperial capital, much grander than its current size and stature but the country benefits economically and politically by not being France or Germany which tend to throw there weight around the councils of Europe. Austria's market is trading at just 12 times 2007 earnings according to data from Reuters but watch out for the high concentration of its top three companies in its ETF (EWO).
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