manager of baring emerging europe urges caution until february
Baring Emerging Europe trust manager Klaus Bockstaller plans to play a cautious hand in the coming months while waiting for a resolution to the tensions in the Middle East.
'We don't have strong bets in the fund at the moment because of the risk of outside shocks. It would be very dangerous to lean too far out of the window at the moment,' he said.
Bockstaller said he would prefer to see whether the US takes action against Iraq during the winter months before committing to positions in neighbouring countries such as Turkey.
Turkey is directly linked to the tensions in Iraq after the US asked to be allowed to put up to 150,000 troops through the country to invade Iraq from the northern border.
There is a strong expectation the US will repay the favour to Turkey with financial support, which would likely increase volatility on local equities.
'If we don't see any military activity in Iraq by the end of February, we will probably have a green light for almost a year, because after February the climatic conditions become very unfavourable to an invasion in Iraq,' he said.
Russia, due to its reliance on oil prices, will also be affected by any military activity in Iraq as it will lead to volatile oil prices.
'In the converging countries, the situation is more stable and quite favourable, because we don't see these risks. Plus there are a lot of companies almost fully restructured owned by foreign strategic investors that are beginning to generate cashflows coming through in the form of dividends,' he said.
He added the risk of further global slowdown is a danger for the Czech Republic and Hungary, where exports, primarily to western Europe, make up around 50% of GDP.
The worsening German economy is a positive for emerging Europe as German manufacturers seeking to cut costs look for opportunities to outsource production to cheaper emerging market bases, he said.
There is some concern that the investable universe is getting smaller as companies are taken over by western companies.
'In the short term, it's very positive as the acquirers have to pay a premium, which means our shareholders make a profit, but we have lost another stock in the universe,' Bockstaller said.
'However, we expect a number of IPOs next year in Russia and Poland from privatisation, and if they are reasonably priced it should attract new companies to the region.'
One of the dominating sector themes over the long term is the development of banks in central Europe, where there are few intermediaries.
'These countries are still very under-resourced in terms of financial intermediaries. The catch-up effect of these converging economies to western Europe can be best played by being invested in banks,' he said.
Shareholders recently approved resolutions for the liquidation and reconstruction of the trust as a new closed-end investment company with the same investment policy and management team.
Bockstaller has declared there will be no change in the way the money is run.
The restructuring decision followed months of negotiation between the trust board and arbitrage specialist investment firm Laxey Partners, which holds around 10% of BEE's share capital and had lobbied for a wind-up of the trust to allow them an exit at close to NAV.
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