They have spoken.

Surprisingly enough, in the middle of July, several of the most experieneced fund managers in the emerging markets decided to take a stroll in baltics. We are talking about guys that dubbed "emerging markets" and already were active in days when Europe was still singing "final countdown" but not feeling it. They pack a significant "AUMph" today and when they speak, people (should) listen. Some thoughts that echoed through our talks:

1) Emerging Markets wishlist is mostly seen like this - Asia, LatAm, CIS, CEE...and in the far back corner there is the balt-country. So, definetley nobody expects much - which is a good thing.
2) The views on Latvia and Lithuania are more soggy than on Estonia. Even now, the shape of things that was kept by Estonian government until 2005 continues to impress and the eurozone bet seems plausible even for them.
3) Also there was a statement once that the currency is overvalued. Which to some extent must be true, but it also seemed that most of the perception and analysis was based on some mid-2008 data. Things have changed after that! Nobody knew that Estonian CA is leveling out or that real estate prices have already adjusted at 40% levels from peak, we have wage deflation and unemployment hitting 11%. After that, it mostly seemed that eurozone is a decent idea.
4) Liquidity. Well, here we are living in the final frontier. There is € 5 billion total equity capitalization for stock markets in all of the baltics - which is actually is more like € 1 billion, given our float. Remember the day it was € 16 billion in 2007? Even then it was amost-a-decent-sized-market-but-still-quite-small for most of the bigwigs. So, its still a very small box of chocolate and not particulary tasty one yet - since everything is relative.

Conclusion: There is A LOT of noise out there on baltics, which is getting a bit boring for everyone since its not news any longer. The interest is there and reality looks better than it seems from distance - especially since the economic data referred to is quite old, given how quickly things can change in small economies. Estonia sticks out in a very positive way and eurozone accession can get the country on Mythbusters. But nevertheless, the equity market needs to become broader over time to get the portfolios looking this way and competitiveness has to increase to keep that CA going up. Will the increasing productivity do the trick or past months have been just a blip? We´ll see!