I wonder if like me you've been pondering the lessons of the Georgian experience and what it may teach us about investing in the CEE and elsewhere? It's something I've always been conscious of and my existing strategy has been never to invest in a country right next door to Russia (including the Baltic states) and certainly not Russia itself. As far as I'm concerned Turkey also falls into this category (secular/Islamic tensions, powerful army).

What made me think even further was Russia's nuclear threat to Poland and potential threats to the energy security of the countries I've invested in (Poland, Czech and Slovakia). Now that Russia has started to throw its weight around and it seems to have worked, one wonders what its strategy might be in the medium term as it gets more confidence and as the western countries, including GB, continue to prevaricate about home grown sources of energy. It's possible sentiment towards the CEE countries could change and inward investment reduce as multi national corporations value security over cheap, well qualified labour.

Balance of probablilty in my view is that things will settle down and these events won't have too much effect (after all it does seem particularly stupid of the Georgians to grab the tiger by the tail). I'm certainly not going to rush out and sell my properties immediately. I would reconsider, however, at the first sign of business opinion changing as this could have a potentially serious effect on the economies of the CEE countries and therefore their property markets.

One last thought - Kiev has been floated as a possible investment location, although very expensive looking. I wonder what investors in Ukraine are thinking now?

Any views?
Huw

Hi Huw

Interesting post.

We do seem to be experiencing a little déjà vu, don’t we? Back to the Cold War politics of bluff calling and brinkmanship.

On a global level, though, I personally believe realpolitik will prevent either side – NATO and the West or Russia – from risking a serious situation becoming a catastrophic one in Georgia.

I’d also put the Baltics in a wholly different category (although I wouldn’t invest in them now for different reasons). The fact that they neighbour Russia, I don’t believe matters too much, nor Poland.

First, should Russia take decisive action against these states for whatever reason the balloon would go up, as they are members of both NATO and the EU. Consequently, the West would have to act and would, I have no doubt. Because they would, Russia wouldn’t – classic cold war deterrent.

Second, if Russia acted in this way, it wouldn’t matter too much whether you were invested in Latvia, the Baltics or anywhere in Europe – all stock markets and property markets would plummet. The same would probably be true of markets around the world. The idea of Russia and NATO coming into direct conflict would have calamitous consequences globally. Make the credit crunch look like a garden party, I’d say!

There are some who argue that NATO is essentially weak and wouldn’t act. Well, the markets would plummet globally if NATO and the EU DID take take action, and they’d plummet even more if they didn’t! The former would mean terrible risk and potential catastrophe, and the latter would mean both organisations, but especially NATO, would be shown to be utterly toothless and NATO’s raison d’etre – an attack on one is an attack on all - would be meaningless. Suddenly the world would be a very different place.

I agree on Turkey – the army is a little too present in politics for my liking, but I don’t see an external threat and it is, of course, a member of NATO.

I agree entirely on Ukraine, though.

That’s why we’ve always banged the drum for EU and NATO membership as so important to provide real stability and security for CEE countries – both for retail property investors AND for big business.

Cheers