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With the investment boom in Chinese and Indian stocks waning, Japanese investors are shifting their focus to Eastern European and Russian shares.

Stock prices are rising in Eastern European countries due to expectations for faster economic growth following their entries into the European Union in the last two years.

Russian stocks are rising backed by an inflow of money from other countries on the strength of higher oil prices.

The stocks are also tempting because they have lower exposure to credit risk than the Chinese and Indian shares, according to a market watcher.

Investment trusts focused on Russian and Eastern European stocks have been making big inroads in Japan.

In early July, Nomura Asset Management Co. began accepting subscriptions for its Eastern European Stock Fund.

The fund is the second of its kind, following Nomura Aurora II, a high-return investment fund focused on Eastern European stocks that Nomura has been managing since 1996.

Stock prices mostly have been rising in Russia and Eastern Europe. But they are “still undervalued,” given the countries’ potential for high economic growth, said Yutaka Kontani, a senior portfolio manager at Nomura.

In particular, market players are keeping a close eye on Poland, the Czech Republic and Hungary.

The stock price indexes of the three countries — dubbed the “honor students of Eastern Europe” — have posted 20 percent to 60 percent annual growth since they joined the European Union in December 2002.

The three countries have been steadily establishing their reputations as the “factories of the European Union” by taking advantage of their geographical proximity to more developed European countries, high educational standards and cheap labor.

In June, Nikko Cordial Securities Co. began selling the Nikko Enlarged Europe Stock Fund, which is managed by UBS Global Asset Management (Switzerland). The fund drew nearly 30 billion yen within one month of its offering.

The SG Russia-Eastern Europe Stock Fund, which Societe Generale Asset Management began offering in March, had about 1 billion yen by the end of June due to increased sales through an Internet securities broker.

Shinko Securities Co. started marketing the Invesco Eastern European Enlargement Stock Fund in June.

Investment in Russian and Eastern European stocks is becoming more popular, but investors still have bitter memories of the Russian financial crisis in 1998.

The fund management companies say they can deal with a sudden change of the market, as the funds are managed by fund managers who had firsthand experience in the Russian crisis.

Russia and Eastern European countries are luring diversified international investment, but there are risks of volatile price movements peculiar to emerging markets as well as exchange-rate fluctuations.

“Although investing in stocks of those countries is attractive, it is not meant for beginners,” said Ayumu Sakurai, head of the asset management and marketing division at Nikko Cordial.

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