INTERVIEW - East Capital sees SEE's outlook brightening on strong growth, valuations, and investor inflows

Southeastern Europe's investment outlook is turning increasingly positive, driven by stronger economic growth than Western Europe, solid corporate earnings and balance sheets, and rising investor inflows into the region, Eglé Fredriksson, portfolio manager at East Capital, a Sweden-based asset manager specialising in global emerging and frontier equity markets, told Emerging Europe Capital Intelligence in an interview. 

"Despite the inflation spikes and geopolitics, even over the cycle of five years in the past, we've seen positive market performance and positive company results, as well as positive flows into the region. If you look at the region versus continental Europe, then you see that it's growing faster and valuations are cheaper. In that respect, it started attracting attention from investors who were underweight in the region. Flows are supportive, higher growth, stronger fundamentals, and still moderate valuations. Another driver would be the potential for a geopolitical resolution at some point," Fredriksson said.

"All wars end one day, and I guess here the potential diminishing risk premiums are another positive catalyst for the future."

East Capital Balkans fund

The asset manager's East Capital Balkans fund is diversified across SEE and parts of Central Europe, with its largest country exposures concentrated in Turkey, Greece, and Hungary. The fund also invests in Slovenia, Romania, and Croatia, among others. 

The Balkans fund is relatively concentrated, with more than half of its capital allocated to the financial sector, followed by industrials with around 25%. East Capital Balkans holds stakes in companies such as Hungary's OTP Bank, Greek Piraeus Bank, Turkish engineering and construction company Enka, and Romania's Banca Transilvania. 

As of the end of the first quarter, the Balkans Fund trades at 8.6x P/E based on 2026 forecasts, with earnings growth of 14% on the year.

Focus on financials

Speaking of the Balkans fund's focus on the financial sector, Fredriksson said that a key common trend observed across many countries in SEE is the investment boom, partially driven by EU funds, and supported by crowding in private investments and local co-financing, which, in turn, drives strong lending for the banks.

"So it's not a surprise that a big part is invested in the banks, but we still try to be stock pickers. We try to choose the banks that have good growth and/or good dividend yields that would protect against the downside, and not overly high valuations." 

Fredriksson noted that East Capital Balkans is somewhat more focused on the financial sector than its peers, while also favouring infrastructure-related investments, particularly in electrification and construction, which span both industrials and infrastructure. These segments also offer potential upside linked to any future reconstruction in Ukraine, as regional companies have the expertise and scale to play a key role, she said.

"We have also traditionally liked consumer stocks, supported by the broader convergence trend as incomes rise and spending patterns move closer to those in more developed European markets, although our positioning there is currently more neutral," Fredriksson stated.

Western Balkans

Asked about the prospects of the fund investing in some of the Western Balkan countries in the future, Fredriksson said that many of these countries have underdeveloped capital markets, which represent a technical constraint. 

"For us to invest, we need to see decent-sized companies that are listed, with a market cap of at least $250 million, and then we need to see sufficient liquidity for us to be able to trade," Fredriksson explained, adding that in the smaller SEE markets, the Balkans fund has one active investment in Croatia.

Geopolitical risks and the EU accession dynamics

"You need to look at the risk-reward combination," Fredriksson said, commenting on how geopolitics and EU integration dynamics are shaping East Capital's investment decisions.

"We are aware of the risks, but we are looking at the potential of what Europe and Eastern Europe would be like if the war in Ukraine is over and reconstruction starts. For us, this is a theme through the neighboring countries. Strong companies that already have a strong business case would benefit on the upside if they get the option to participate in the reconstruction of Ukraine. When it comes to EU convergence, it would be nice to be able to invest in a sort of delay in the convergence stories in smaller Balkan countries, but there we don’t see enough opportunities for public equity investors."

There are some other issues in the region, Fredriksson noted, such as political risks, but as an emerging and frontier investor, East Capital is comfortable with them.

"We see Romania being volatile. There is some positive news, then there can be some negative news on, for example, a political front. But we understand that. And we still keep our risk-adjusted exposure in Romania," she said.

Key drivers behind the Balkans fund's performance

"The key to performance is our style of investing."

Fredriksson said East Capital's strategy is built on deep regional expertise. The team largely comes from the markets the firm invests in, providing it with strong local insight and access. Over the past year, performance has been driven mainly by stock picking, alongside the broader convergence story, with SEE markets still catching up and in some cases growing faster than more mature Central European economies.

East Capital combines top-down themes—such as electrification and digitalisation—with bottom-up analysis to identify the most attractive opportunities in the region, focusing on well-managed companies with strong growth prospects, solid market positions and healthy margins, while maintaining discipline on valuations and incorporating sustainability analysis to manage risk, she stated.

Frequent on-the-ground research, close relationships with management teams, and a strong local network remain central to East Capital's approach and long-term performance.

Investment-driven growth and EU funds

Fredriksson said that Greece is a good example of how EU funds have been used to accelerate the recovery and clean up of the economy after the debt crisis, and how the investment cycle has been reignited with EU funds. 

"This is a country that has been putting EU funds to the best use. Eastern Europe has been behind, but we see a lot of GDP growth that has been created, or can still be created, from the investment point of view," Fredriksson stated.

"Domestic consumption in any convergence is a very important pillar, because you want to accelerate the growth of the average GDP per capita. And that journey is definitely continuing in the region," Fredriksson concluded.