some european fund managers have doubled their russian exposure due to reforms confidence
A number of emerging European fund managers are biased toward Russia, being confident that the bull market seen over the past year has further to go.
The average Russian weighting for Eastern European funds is 28.5%, according to Forsyth research. However, several funds are almost double this weight, primarily due to confidence over reforms.
Those funds that are overweight Russia include the $22m Hypo Invest Activest Lux Osteuropa Fund (51.4% in Russia), ING's $37m BBL Invest Emerging Europe fund (40.5%), the $6m Eastern European Heritage fund (44%), the $50m UBS Eastern Europe fund (53.4%) and the $15.8m Bonfield Longbow Fund (45%).
Dominic Jennings, manager of the Bonfield Longbow Fund, says although the Russian equity market had performed well, the macroeconomic situation was continuing to improve, led by a number of positive factors such as tax reform and corporate governance.
'There are a number of issues we think have not been appreciated by the market and therefore we anticipate further upside,' Jennings says.
'Within Russia there is nothing on the macro side, except the threat of the oil price falling to $10 a barrel, that leads us to be less than optimistic and President Vladimir Putin is doing very well.'
The Longbow fund's overweight position in Russia is held at the expense of Poland, which represents just 15% of the fund compared to an average 23.6% and Hungary, which represents 14% of the fund, thus being underweight the sector average of 24.2%.
Jennings says Poland's progress had been thwarted by political problems earlier in the year and there is limited choice from the Hungarian market.
He, however, expects that Hungary, as an EU candidate, could attract more interest during 2002. However, it is now too early to increase exposure in anticipation.
Another country the Longbow fund is slightly underweight in is the Czech Republic, which represents 9% of the fund, compared to an average weighting of 11%. The fund is overweight Croatia, which represents 5% of the portfolio, against the sector average of 2.8%.
The fund with the most underweight exposure to Russia is the Scottish Widows Central and European fund, where Russia represents just 7.8% of the portfolio.
The manager of the Scottish Widows fund prefers to hold a bias toward Hungary and the Czech Republic. Hungary represents 30.3% of that fund, against the sector average of 24.2% and the Czech Republic is almost double weighted in the fund at 20%, while the sector average is 11%.
Managers that are overweight Poland include Benoit Parisot, who manages the $4m CrÃ©dit Agricole Eastern European fund and has 36% exposure compared to the sector average of 23.6%.
'From a technical aspect I anticipate that after a strong recovery in October and November, followed by a decline in December, Poland is due for another leg of outperformance,' says Parisot.
'From a fundamental point of view shares are still cheap after a long period of underperformance and there is significant potential for interest rate cuts.'
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