Emerging European economies are a storehouse for big returns in the coming years, said the lead manager for Excel Emerging Europe Fund, during a breakfast presentation this morning in Toronto.

Excel has brought on Barings Asset Management Ltd. to handle the fund, and head portfolio manager, Ghadir Abu Leil-Cooper was in from London this week to promote the case for investing in emerging European economies.

Leil-Cooper outlined her reasons for bottom-up driven growth in countries such as Russia, Kazakhstan, Turkey and the Czech Republic. Despite the fund’s focus on Eastern Europe, her presentation examined the resource needs — such as the growth potential of oil consumption per capita — of China and India as they grow. External demand must continue to expand in order for internal growth in countries such as Russia to persist, she said.

“Central Europe is not a new investment story,” Leil-Cooper says. “It has been a fantastic investment opportunity for the last few years.” The economies that are close to the European Union are growing much faster and more cheaply than their Western European neighbours. This is due, she says, to high levels of investment. Low wages and an educated workforce make these countries attractive places to set up shop. “These economies are growing at least a 200 to 300 basis points premium to the rest of Europe.”

Eastern European markets will be shielded, at least in part, from the economic slowdown in the United States and the credit crunch problems, according to Leil-Cooper. “We believe that emerging economies are going to compensate somewhat, because they are urbanizing.”

For instance, loan growth in 2007 at Russia’s largest bank was between 35 and 40%, and Excel is expecting those numbers to continue into 2008. “Russia is underleveraged. Mortgage penetration in Russia is below 2%. That’s why we are attracted to the Russian domestic story,” says Leil-Cooper.

Echoing the sentiments of a number of Canadian economists of late, Leil-Cooper noted that the importance of the U.S. economy in world markets is diminishing.

“The economic growth now is not just dependent on those economies making things for the U.S,” she says. While there is certainly a correlation that exists between U.S. growth and that of emerging economies, she said the level of that correlation is coming down.

“Bottom-up opportunities remain attractive despite the global backdrop,” says Excel.

When asked about her biggest fears when it comes to investing in the region, Leil-Cooper first cited domestic shocks — last year’s elections in Turkey, which put a strain on markets, for example. She also admitted that the theory that emerging markets can grow despite U.S. slowdowns is, in fact, untested.

“What we’ve seen in the last seven or eight years leads us to believe that this is the case,” she says. “But we really haven’t seen a deep U.S. recession in that time. So that’s what the markets are now fearing and that’s why we’re seeing synchronized sell-offs in the markets.”