Key Takeaways:

• Macro stress has eased across CEE, setting the stage for a gradual shift toward consumption-led growth.
• Political dynamics now play a decisive role in valuations, increasing dispersion across markets.
• Defense spending, EU funding, and financial deepening, especially in Poland and Central Asia, offer durable structural opportunities.

During a two-week research trip across Prague, Warsaw, Budapest, and Istanbul, VanEck’s Emerging Markets portfolio management team attended 45 meetings spanning company leadership, site visits, investors, and policy makers. The most striking takeaway from these meetings was regional resilience. The macro stress of the past has eased faster than expected and what is emerging in its place is a more normalized but also differentiated investment landscape, one where politics, demographics, and selection matter more than headline inflation alone. Against this backdrop, we see the most compelling opportunities in companies aligned with long-term structural themes, including defense spending, and investment-led growth.

From Stress to Normalization

Central and Eastern Europe (CEE) has moved past the acute macro stress of the last two years. Inflation shocks, aggressive tightening, and crisis-driven uncertainty have eased faster than expected in several markets. Disinflation in energy and food prices, combined with early signs of labor market cooling, has reduced pressure on households and policymakers alike. Central banks across the region remain cautious but the direction of travel has shifted from restrictive toward more accommodative, creating room for gradual easing through 2026.

CEE economies such as Poland, the Czech Republic, Hungary, and Romania are growing steadily supported by an exceptionally strong labor market. Labor shortages remain a structural feature across Europe, estimated at roughly 15–17% in many countries.¹ This scarcity anchors wage growth, limits the risk of sharp cyclical downturns, and supports continued growth in domestic consumption.

While disinflation has stabilized household balance sheets, a broad-based recovery in consumer demand has not yet fully materialized. Savings rates remain elevated, housing activity subdued, and discretionary spending cautious.

Importantly, this caution appears cyclical rather than structural. As real incomes continue to recover and monetary policy shifts gradually toward easing, we believe the region is approaching an inflection point. The next leg of growth will be increasingly consumption-led, as improving economic conditions restore confidence and unlock pent-up demand.

Politics Sets the Ceiling

While macro stabilization has reduced downside risks across the region, political dynamics are increasingly shaping investment outcomes and relative performance across equity markets. In Poland, institutional friction between the presidency and parliament has slowed policy execution. In Hungary, the April 2026 parliamentary election dominates the short-term outlook as uncertainty over EU relations reinforce a wait-and-see posture among investors and corporates. In Turkey, despite a credible disinflation path, recurring political noise has underscored how fragile confidence remains.

Across the region, the message was consistent: stabilization helps, but politics sets the ceiling for valuation. Fiscal deficits remain elevated across parts of the region, but markets are increasingly discerning, rewarding countries where deficits fund productive investment while penalizing weaker fiscal discipline.

Defense Spending as a Structural Anchor

Defense spending has become the clearest expression of policy pragmatism across the region given current geopolitical tensions and elevated security risks from the Russia-Ukraine war. After decades of underinvestment, European and NATO defense markets are now undergoing a structural reset — with ammunition and land systems among the most capacity-constrained and strategically critical segments.

Defense Spending as a Share of GDP in Selected Countries

Source: NATO, as of June 3, 2025.

NATO commitments and EU-level financing make defense spending sustainable and long-dated. Importantly, this investment extends well beyond military procurement. It is supporting domestic manufacturing, logistics capabilities, rail, ports, and broader infrastructure, creating a spillover effect across multiple industries. Unlike cyclical stimulus, defense investment offers multi-year visibility and reinforces domestic industrial capacity, making it one of the most durable capital-allocation themes in the region.

Poland: The Star of CEE

Among all countries visited, Poland stood out as the region’s structural outperformer. The country continues to benefit from substantial EU funding, elevated defense spending, and a robust infrastructure pipeline. 2026 is shaping up to be a pivotal year, with Recovery and Resilience Facility inflows expected to more than triple versus 2025, alongside rising absorption of cohesion funds and low-interest loans for defense investments from the EU.

Poland EU Fund Inflows

Source: Schuman Associates, as of December 2024.

Poland is also benefiting from a strong labor market that has improved wage growth and household income. Given the tight labor market and monetary easing, we believe household consumption is poised to reaccelerate as easing policy and sustained wage growth restore confidence.

Central Asia: A Different Growth Engine

An unexpected, but increasingly important, theme that emerged during meetings on the ground was growth in Central Asia, particularly Kazakhstan and Uzbekistan. These economies are sustaining 5–7% real GDP growth, driven by young demographics, urbanization, rising productivity, and increasing domestic investment. Financial penetration remains low, creating long runways for credit growth. Kaspi^*, Kazakhstan’s leading super app, continues to drive the formalization of payments, e-commerce penetration, and financial inclusion.

Uzbekistan is at earlier-stage in its economic development but that is precisely what makes it compelling. The country has been moving away from a closed economy towards a more open one, introducing new regulations to develop its capital market and attract investment. Rising investor interest reflects the government’s privatization drive and its objective of lifting GDP from $150 billion today to above $200 billion by 2030. Foreign companies are seeking to actively expand in the country, drawn to its high growth profile and regional champions are already positioning for this next phase of growth. Large banks such as OTP Bank^* are expanding in Uzbekistan, seeking to capture structurally higher credit growth than is available in slower-growing European markets.

Taken together, Central Asia provides a complementary growth engine to Emerging Europe: less constrained by demographics, earlier in its financial development, and offering the kind of structural growth that defined emerging markets in earlier decades. For investors willing to look beyond traditional regional buckets, the opportunity set is both familiar and increasingly investable.

Selective Exposure Across Emerging Europe and Central Asia

Across the region, our VanEck Emerging Markets Fund remains selective. OTP Bank^*, Hungary’s largest commercial bank is likely to benefit from a pickup in corporate lending in 2026. We believe the bank could deliver strong lending growth with decent net interest margins across all its addressable markets. The bank also has ambitions to strengthen its presence in Uzbekistan after acquiring a majority stake in one of the country’s top lenders.

PKO Bank Polska^* is likely to benefit from accelerating loan growth as EU-funded projects transition to bank-financed investment. Similarly, InPost^* with its comprehensive business logistics and consumer focused services is poised to benefit from industrial and discretionary consumption trends in Poland and broader EU region. In contrast to the companies benefitting from macro trends, Diagnostyka^* provides healthcare exposure to Poland’s underpenetrated medical diagnostics industry that is benefiting from industry consolidation and rising demand for diagnostic services.

We believe MLP Sağlık^*, the largest hospital group in Turkey could deliver strong earnings growth. The company is well positioned to benefit from consolidation in the industry and enjoys significant pricing power that boosts its profit margins.

One of Georgia’s largest banks, Bank of Georgia^* with over 40% market share offers scale and operating leverage. We believe the company will continue to grow its Armenian operations, benefitting from Armenia’s lower banking penetration and rapid loan growth.

We also believe Greek banks, Piraeus Bank^* and Eurobank^* will benefit from strong loan growth in 2026 and beyond supported by private consumption and a multi-year investment cycle tied to EU fund inflows.

Positioning for Growth

Our meetings reinforced the view that with the macro reset largely behind us, the Emerging Europe opportunity now lies more in active selection. Investment-led themes including defense, EU-funded infrastructure, financial deepening, and consumption recovery offer the clearest visibility. Politics and institutions will continue to drive dispersion, but for investors willing to be selective, the opportunity set is compelling. In Emerging Europe, durability and execution matter more than narrative, and that is where we see the strongest potential for returns.

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