Fund managers investing in Central and Eastern Europe continue to favour Hungary over other markets....
Fund managers investing in Central and Eastern Europe continue to favour Hungary over other markets.
Hungary is seen as the most successful of the countries in the region, with strong export-led growth, especially in the wake of the ongoing recovery in Western Europe. Inflation is on a downward trend, although the July figure was disappointing at 9.2% annualised, up from 9.1% in June, according to Andrew Ness, emerging Europe fund manager at Murray Johnstone.
The market was expecting a fall to 8.7% but Ness says the reasons for the disappointing results involved pressures in oil pricing.
The country's fiscal deficit continues to shrink and the current account is improving, he adds.
Joanne Irvine, fund manager at Aberdeen Asset Management, says: "Valuations are exceptionally cheap. However, Hungary has not done as well as anticipated because of government interference, controlling pricing in gas and drugs, which affects sentiment."
Irvine finds the financial sector attractive. Hungary has already experienced a wave of bank privatisations. The Aberdeen Global Emerging Europe Fund has holdings in OTP, Hungary's largest bank. The portfolio weighting in Hungary is 31.7% compared to the MSCI Emerging Markets and Eastern Europe (excluding Russia) index weighting of 35.7%.
Isabelle Knight, fund manager at Credit Suisse Asset Management is less positive on the region, believing there is a lack of investor interest in Hungary. She says there is no news to drive the market.
Aberdeen is slightly underweight in the Czech Republic at 19.2%, compared to the index weighting of 23.7%.
The Czech Republic is recovering from its recent banking and economic crisis and of key interest is the privatisation taking place across all sectors.
Poland has the most uncertain outlook of the Central European countries, says Ness. Fiscal policy is not tight enough, interest rates will remain persistently high and inflation is expected to overshoot at 8-8.5% the National Bank of Poland target of 5.3-6.8%. Monetary policy is expected to be kept tight over the year. He remains positive on Poland and expects it to improve over the year.
Knight agrees with Ness on Poland and notes the heavy technology focus in the country. Irvine is cautious about Poland in the short term, noting there will be new companies coming to the market before the end of the year which may drain cash and liquidity. TPSA, the Polish telecom, issued a significant amount of employee shares, which will probably come onto the market soon, she says.
Andrew MacKirdy, emerging European equities fund manager at Baillie Gifford, says: "The Polish market has been propped up by high levels of domestic pension fund inflows."
Vladimir Putin's presidency of Russia has impressed managers thus far. Mackirdy says: "I have been struck by Putin's ability to use a reasonably compliant Duma to force through a number of quite radical reforms. The problem in Russia is finding companies. A favourite is Lukoil, one of the world's largest oil companies."
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