Several themes have emerged from the current offshore fund research conducted by fund managers Forsy...
Several themes have emerged from the current offshore fund research conducted by fund managers Forsyth Partners.
The first is a substantial increase in EU inflows into the region, with Western pension funds featuring increasingly as buyers on a long-term view.
Their chief focus remains on Hungary and Poland as future EU convergence plays, offering the prospect of re-rating significantly higher as they approach EU accession.
Hungary is generally the managers' preferred market because of its favourable macroeconomic outlook, stable political situation and high quality companies. The main drawback is the limited number of investment opportunities.
Joanne Irving, a fund managers at Aberdeen Asset Management, explained that their favourite market in Eastern Europe is Hungary because its economy is the most highly geared to that of Western Europe.
The Aberdeen Global Emerging Europe fund's largest allocation, some 40%, is here. In the Aberdeen International Frontier Markets fund the weighting to Hungary is 8%. The two favourite stocks are OTP Bank and Matav, the telecoms company.
Aberdeen has a neutral to slightly positive stance on the Russian equity market where concerns that the oil price is too high are partially countered by enthusiasm over the political situation and debt rescheduling by the IMF.
It is overweight the Turkish market and underweight the Greek market.
In Poland, concern over its high current account deficit and tension between the coalition partners is outweighed by strong liquidity into the market by domestic retail investors and pension funds. Demand is forecast to continue and is expected to underpin current valuations. Additionally, the Polish market offers greater breadth and more buying opportunities than Hungary.
Another main theme is the emergence of the 'new economy' in Poland. Infotech/media stocks such as Agora, Softbank, Prokorn Software and Comarch feature among the top 10 holdings of a number of funds and managers talk of a new entrepreneurial spirit in Poland.
Managers are generally keen to participate in this new dynamic growth sector. There is a noticeably strong emphasis on telecoms with Matav, TP&A and SPT Telecom playing an important role in regional portfolios.
There is currently little evidence that managers intend to boost exposure to Russia. It is widely felt that Putin's victory is already priced in and managers are generally not expecting the elections to lead to significant upside, particularly in view of December's sharp rally.
The managers are, for the most part, continuing to avoid the smaller markets, preferring instead to move down the cap scale in the core markets as they broaden out.
Investments in the smaller markets continue to be driven by bottom-up considerations rather than by top-down calls, despite better sentiment towards Croatia, Slovenia and Bulgaria.
Managers are generally positive in their outlook for the region. They expect Central Europe to benefit from higher EU growth and increased buying interest from both domestic and foreign investors.
Additionally, it seems likely the region will benefit from global equity managers increasing their weightings to the emerging markets asset class later this year.
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