Despite the rising economic risks, investment opportunities in Serbia and the broader Balkans region remain attractive, according to a recent report from OTP Bank. The report highlights that while the global investment landscape is being reshaped by persistent high energy prices and geopolitical tensions, sectors such as artificial intelligence (AI) and regions less affected by energy price hikes could provide new avenues for investors.
The OTP Bank’s quarterly investment outlook suggests that the development of AI technologies presents significant potential for growth. This is particularly relevant for emerging markets, where corporate earnings growth, driven by AI, has surpassed that of the United States. The report points out that the South Korean stock market, heavily invested in AI, deserves special attention from investors seeking opportunities in this sector.
In the United States, the economy has shown resilience, maintaining a growth rate of around 2% despite the challenges posed by trade wars and geopolitical conflicts, such as the ongoing tensions in the Middle East. This resilience is attributed primarily to strong consumer spending and robust investment activities. However, the report cautions that prolonged geopolitical conflicts and sustained high energy prices could exacerbate inflationary pressures and slow down economic growth.
Győző Eppich, Director of OTP’s Analysis Center, notes that while the U.S. benefits from energy independence, reducing its exposure to high energy prices compared to Europe and Asia, supply chain disruptions and their secondary effects on other products create uncertainties regarding GDP growth and future inflation trends. The fiscal health of the U.S. is also a concern, with a fiscal deficit of about 6%, significantly above the historical average. Rising interest expenses could potentially double to $2 trillion annually by 2036, further stressing public finances.
In Europe, the economic outlook is mixed. While some indicators suggest resilience against high energy prices, the European Central Bank (ECB) anticipates that normalizing energy prices by 2027 could boost household disposable income and domestic consumption. Investments in AI, defense, and infrastructure are expected to support further growth. However, European companies continue to face challenges with low profit margins and weak growth, making European equities less attractive in terms of relative valuation.
The report also highlights the potential for market corrections, which could provide favorable entry points for investors. Dávid Sándor, Head of Multi-Asset Research at OTP Global Markets, emphasizes that while corporate earnings growth, particularly fueled by AI investments, has mitigated some risks in the stock market, the sustainability of these investments remains a concern. The report suggests a selective approach to investment, given the ongoing tensions involving Iran and rising bond yields.
Emerging markets in Central and Eastern Europe have managed to navigate the rising energy prices relatively successfully. The region’s corporate earnings growth, attractive valuations, and significant representation of the financial sector make it one of the most appealing areas for investors looking for opportunities outside of AI. Similarly, Latin America is positioned to benefit, with upcoming elections in Brazil potentially providing a temporary boost to an already undervalued market.
Overall, while the global economic environment is fraught with challenges, the OTP Bank report underscores that there are still promising investment opportunities, particularly in sectors and regions that can leverage technological advancements and maintain a degree of insulation from energy market volatility.
