We believe that markets have found a resting point but will remain volatile. Despite volatility having settled down, it is still at extreme highs and we expect markets to move sideways for a while in general. This could still happen within quite a wide bandwidth, says Henning Esskuchen (photo), Head of CEE Equity Research at Erste Group.

He further points out that profit warnings, bankruptcy and refinancing news might feed volatility. Equally though, he states that governments reacting with support packages at unprecedented speed will at last give some comfort to markets, avoiding further panic-stricken sell-offs.

Risks are present and growth in CEE will undoubtedly slow down in 2009, analysts say. However, CEE is not to Europe what subprime is to the US.

Growth rate differentials to Western markets will remain and economies such as Romania (exports contributing only 25% to GDP) should be able to fare well on domestic demand. Currencies remain a weak point for the moment, but on the other hand, they see room for positive surprises in all markets.

Within the current environment, balance sheet quality should be viewed as a crucial criteria. Profitability and growth prospects should also be considered, says Henning Esskuchen pointing out some basic indicators which should help differentiate among sectors.

Winners of the category are technology and healthcare partly due to their ability to produce sound cash flows (and retaining IPO/SPO proceeds in their pockets – Intercell). Sectors at the other end of the scale are either potentially in real trouble (travel & tourism) or can rely to a larger extent on external financing (telecom, utilities). The food & beverage industry, which would have been a defensive pick, is unconvincing.

Given the expected length of the economic downturn Erste Group analysts still stick to defensive sectors with the exception of food (Poland), but would add technology. They feel nevertheless more optimistic for oil & gas in the region - their mostly integrated business profile provides some shelter against oil price development and debt indicators do not paint a worrying picture.