A visit to Europe's Balkan frontier

Oliver Bell

Earlier this year we went to the Balkans to visit the frontier markets of Croatia, Slovenia, and Serbia. It was our first serious team trip to the region and it was an interesting time, given all three are now starting to gain some meaningful growth momentum after what had been a period of deceleration and, in the case of Croatia, a full-blown recession.

Despite close proximity, each economy has its own unique characteristics and drivers. From a top-down perspective, Serbia, the only non-EU member, is starting from a lower base of development. For example, it is at a lower level of financial penetration and appears to be the fastest growing. In addition to being home to a relatively large population, successful attempts to reduce deficits and enact necessary reform have been key supporters of recent growth.

While Slovenia is the smallest in both land size and population, it is by far the most developed, having been a part of the EU since 2004. It was quickest to bounce back after 2008 turmoil. This is where the team is currently finding the most interesting opportunities, mainly due to its better management teams. Meanwhile, the macro backdrop in Croatia is finally improving as it recovers from a six-year recession, ended in 2015. A shared theme of all three is a sense of stability in politics and currencies. While Slovenia adopted the euro in 2007, the Croatian kuna and Serbian dinar have held steady against the euro. Inflation has also been consistently low.

We returned from the trip with a short list of interesting ideas, mainly within the mid-cap space, given the lack of large-cap listed stocks. Liquidity remains an issue across the region, and we have some additional research to do before these ideas potentially translate into portfolio actions.