CEE - Inflation caused by rising food and energy prices in the aftermath of the credit crunch is the main worry of Eastern European economies but for some also a major opportunity, delegates at a conference in Vienna heard today.

Government and banking sector representatives from the CEE region (CEE) agreed at the 13th Euromoney Central & Easter European Forum their economies were far less immediately affected by the subprime crisis than most developed markets.

However, the aftermath of the crisis is hitting them too, bringing higher inflation of up to 10% to the countries and uncertainty to the equity markets.

"Pension funds in the Baltics were not invested in the products which were most affected by the crisis," Kristjan Tamla, manager at Hansa Investmet Funds, explained to IPE.

"Most pension funds in the CEE region are strongly biased towards their own region in their asset allocation, therefore they felt the impact on developed markets less strongly although they were of course also affected," he added.

To prevent further losses from their investments, many are looking towards inflation-hedged products, Tamla noted.

Hansa might be going in a different direction and is currently looking at the possibilities of investing in local interest rate products which some analysts say are mispriced.

"Recent studies have shown spreads in the Mediterranean have widened much more than in Central and Eastern Europe so I think CEE spreads are fairly priced," Tamla said.

Pioneer Austria pointed out in its most recent Eastern Europe newsletter inflation in the CEE region has led to a yield increase of eurozone as well as local currency bonds.

"The yield increase in Poland, Hungary and the Czech Republic has rendered these markets on very interesting spread levels," Pioneer noted.

Daniel Nevidal, managing director of  Croation fixed-income manager Intercapital Securities, agreed inflation actualy provided chances for local bond markets.

"Inflation risk will force central banks to tighten policies which will help the bond market," he pointed out.

He added the crisis has and will hit smaller markets with a strong local investor base less than larger markets like the eurozone.

However, some delegates saw risks prevailing over chances in inflation-hit CEE markets.

"Investment in eurobonds is safest because local currency bonds might be at risk because of inflation," Fokion Karavias, general manager at Greek Eurobank EFG, warned.

Marko Škreb, chief economist at Croatian Privredna Banka Zagreb which is part of the Intesa Sanpaolo Group, questioned the usefulness of local currency bond markets all together.

"Most of the countries in the region which have not done so already want to join the eurozone. Some, like Croatia, are exposed to the euro currency either directly or via indices. So how much energy should be put into efforts of creating bond markets in local currencies?" he asked the conference.

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