The enlargement of the EU to include 10 member countries on 1 May next year will not have a bi...
The enlargement of the EU to include 10 member countries on 1 May next year will not have a big impact on European portfolios, Jamie Sanderson, head of European equities at Edinburgh Fund Managers (EFM), says.
While EU enlargement is likely to affect the way the group invests its funds, Sanderson says he will be surprised if the new countries amount to more than 2%-3% of the average European portfolio on a five-year timescale.
However, he believes there will be an increasing number of privatisations and IPOs in these countries as eurozone entry moves closer and investor interest in them grows. As a result, he says, the range of investment opportunities will expand and the scope for the Czech Republic, Hungary, Poland and others to play a more important role in mainstream funds will increase.
Fiona Page, investment manager at Britannic Asset Management, points out the group's European Growth fund already has some exposure to emerging European companies through the strategic partnerships some of them have developed.
For instance, France Telecom has a stake in Polish telecom company TPSA and Deutsche Telekom has a holding in Hungarian firm Matav. Because of this, Page says, she already has indirect exposure to some countries about to join the EU.
Going forward, Page feels the addition of Hungary, Poland and the Czech Republic will only increase the number of blue chips in which the fund can invest by around 25.
A threat to Western European countries already within the EU as a result of the expansion will come from competition, she adds, as labour costs are much cheaper in emerging Europe.
Indeed, Page says, there has already been a redistribution of wealth, with many companies in Germany moving their labour forces into Eastern Europe.
In market cap terms, Page feels the entrants into the EU will not initially be important and will not be hugely liquid areas of the market, as they are similar in stature to Greece and Ireland.
She says: 'I would probably seek one company in each of Hungary, Poland and the Czech Republic to feel I have adequate exposure to the increased universe.'
Page also strongly suspects European analyst and emerging European analyst desks will be merged, if they have not already, as a result of the EU expansion.
However, the actual time it will take for European fund managers to start thinking of these countries joining the EU as European instead of emerging European, is hard to tell.
Kieron Gallagher, manager of the Legg Mason Investors' European fund, believes it is important to be invested in these markets early. As such, he has already invested 10% of his portfolio in European accession countries and a further 5% in applicant countries such as Croatia, Bulgaria, Romania and Turkey.
In the accession countries, Gallagher is seeing growth averaging around 3% per year, while in those that have applied to enter, the average is around 4%-4.5%.
Average EU accession country growth 3%pa.
Cheap labour costs outside Western Europe.
Range of investment opportunities will grow.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till