Romanian capital market has a high upside potential this year, as BET index is expected to grow 77%, the biggest rate in the region, according to CEE Equity Research by Erste.

“Romania clearly shows the highest upside potential, since the market was and still is plagued by high risk aversion (which is partially justified for the moment). Consequently, the indicated performance potential is greatly reliant on a major decrease in risk aversion towards this market. Also, a still liquidity-starved market such as Romania does deserve a certain liquidity discount,” said Henning Esskuchen (photo), Co-Head CEE Equity Research.

However, the speed of improvement in the central and eastern European markets is slowing, but not alarming, since the base effect is fading out and current expectations are developing in an acceptable way.

“Hence, the imminent risk of rate hikes should also remain part of expectations for the coming quarters. In any case, sentiment combined with still strong liquidity should continue to help markets deliver a strong showing in first quarter 2010,” Erste said in the report.

Russia, as another potential top performer shows a very reliable regression outcome the RTS index having a return estimated at 49%. This in turn should be a function of a rising oil price, which again presents the general dilemma that we have with this market, which depends so strongly on one commodity.

The Czech Republic, Austria, Turkey, Poland and Croatia are all seen as potentially offering upsides of between 20% and 30% while Hungary has a negative growth potential of 3%.

“Economically, CEE markets will remain split into two parts. Those markets that found a bottom

earlier (PL, CZ, SK) should be able to report better growth for 2010, while markets lagging

behind in bottoming will also lag in terms of growth (RO, HU, HR)”, said Henn