With the exception of Russia, Eastern Europe has suffered from the global slowdown, according to Gil...
With the exception of Russia, Eastern Europe has suffered from the global slowdown, according to Giles Neville, fund manager of Schroders' Global Emerging Markets Fund.
He contrasts Russia's performance, having increased 40% in dollar terms in the year to date, with that of Poland, which dropped by 25%. Hungary saw a fall of 20% while the Czech Republic fell by 13%, according to MSCI figures.
Neville puts this difference in performance down to one main factor ' the price of oil. He says this has allowed the Russian government to make good progress on reforms, which in turn have helped the economy grow from the low base it had fallen to following the earlier collapse of the Russian economy. He reports that good progress has been made on ensuring property and shareholder rights and that this has given confidence to foreign investors.
Bill Roden, fund manager of the Axa Global Emerging Markets Oeic, also highlights the very strong performance of Russian oil stocks. He picks Lukoil, having increased 31% in the three months to date, as a typical example of the strength of the sector.
Oil is a large part of the investible universe for the Russian stock market, says Neville, so a high oil price is very positive for the economy as a whole. But the high price could also have its downside.
He says: 'We are generally confident about Russia from a macro perspective but the economic strength may mean its currency will appreciate too much, which would make exports less competitive.'
Roden, however, argues that the currency is at a sustainable level and that a weakening of the oil price should keep the level of the rouble from increasing too much.
The Russian energy sector is also performing strongly, Roden says. He cites the electricity company UES as an example of a company that has benefited from regulatory and structural reform. Some parts of the mining sector are also performing well: Norlisk Nickel has increased 50% in local currency terms over the past three months.
Elsewhere, Turkey is suffering from a weak lira, which has hit the banking sector. Roden thinks the biggest risk for the sector is the refinancing Turkish banks will have to implement over the next year.
Still, the weak currency is helping companies like Vestel, which manufactures low end TVs for the European market.
Roden sees Hungary as being the most likely to perform well in the near future of the Eastern European countries. He says: 'My favourite market is Hungary because it has the most competitive products and good corporate governance.'
He says the dominant telecoms company Matav is tempting investors away from Poland's biggest player TPSA because the latter is facing pricing pressure from new competitors allowed in by deregulation.
Another Hungarian company Roden favours is Gedeon Richter, a pharmaceutical company that has recently launched new generic drugs onto the domestic market and is also expanding its export capabilities.
High oil price boosting Russian economy.
Confidence from reforms in Russia.
Turkish exports cheap due to weak lira.
Odds widened to 2/1
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