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To many, an investment strategy that targets former Communist states in Europe would automatically have two strikes against it, i.e., Communism and the European economy. This unfortunate reality makes the Baltics — Estonia, Latvia and Lithuania — the investing equivalents of diamonds-in-the-rough, writes analyst Peter Kohli in marketwatch.com, a subsidiary of Dow Jones and The Wall Street Journal.

The Baltics are forward-thinking, educated and ambitious nations with some of the most liberal trade and investment policies in Europe and an eastern hunger for success.

More importantly however, they are far ahead of their European counterparts in terms of recovering from the recent EU turmoil, mainly because they didn't take a dime of the bailout money offered. In a way, the Baltics' brand of capitalism in some ways trumps the capitalists saying, in effect, "We got into trouble, and we don't need anyone's help to get out it." To wit, when was the last time you heard that in Washington?

The decision they made to get themselves out of trouble, good old-fashioned belt tightening (including an internal devaluation vs. a currency devaluation), derided by no less than Nobel Prize winning Op-Ed columnist Paul Krugman, was painful: While the GDP of Europe in general saw a contraction of -5.7% in the 2009-2010 crisis, Lithuania suffered -16.1%, Estonia -19.5% and Latvia -24.6%, according to Swedbank, a Swedish bank with significant operations in the Baltics.

Now, however, their GDP growth is nearly back to pre-crisis levels, while the rest of Europe is lagging. This will position them for a faster, stronger recovery than their Western counterparts. Lithuania is currently seeing positive GDP growth and by 2014, all three countries will demonstrate positive GDP growth while the rest of the euro-zone will still be struggling with negative GDP.

By many other measures the Baltics are showing stronger development than the rest of the zone, including export growth, import growth, foreign direct investment, investment growth and real-wage growth.

According to the "Global Competitiveness Report" by the World Economic Forum, the Baltics are collectively home to a highly educated, IT-literate, multi-lingual workforce. They are pro-business with an in depth knowledge of Russia and the CIS making them uniquely suited to East-West trade.

Estonia and Lithuania, in particular, are highly integrated with the Scandinavian countries, Finland and Sweden, which, among other advantages, gives them the advantage of an extremely advanced telecommunications infrastructure.

The Baltics as a whole are exceptionally attractive investment locations. The Baltics are Europe's fastest-growing market with 10 million people whose wages are rising and taxes are low. As a whole, the Baltics have some of the lowest personal- and business-tax burdens in Europe.

The region is pro-business, with labor costs less than 50% of those in other EU countries, flexible labor regulations, special economic zones and other tax and financial incentives offered. Based on World Bank data, the Baltics rank highly in terms of ease of doing business, ahead of Japan and Germany for instance.

In many view, the people of the Baltics are rapidly making up for lost time under the Soviets and in many ways are more can-do and "capitalist" than the so-called capitalist countries.

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Source: marketwatch.com