Eastern European Fund Report – October 2012

September was a good month for the region and for the Nevsky Eastern European Fund. This was largely driven by news from the United States, where the Fed made an announcement about open ended QE3.

As a result, the Fund saw growth of 3.8% during September. This compares with a 4.1% rise for the peer group average.

Given the Fed’s actions, the decision was taken to plough more money into Turkey and Russian holdings, resulting in a reduction in the amount of cash being held.

There were some concerns surrounding the poor macro economic fundamentals in Western Europe, particularly with reference to the possibility of these having a knock-on effect elsewhere. Despite this, strong gains were seen in Hungary and Poland.

In fact, both Polish and Hungarian markets rose by 8.5% in US terms during the course of the month. In part, this was helped by the stronger Euro.

With weak economic fundamentals and plenty of liquidity (being provided by Central Banks), the Fund Managers have judged that it is prudent to maintain a relatively high cash balance at this period in time.

Overall, the Fund held 10.4% of the overall value in cash. 57.1% of the Fund represents investments in Russia, with 11.5% in Turkey, 11.1% in Poland and 4.4% in Hungary. The remainder is split evenly between the Czech Republic and Kazakhstan.

Eastern European Fund Report – June 2012

The month of May was horrendous for emerging markets, although the fund was able to out-perform its peers, despite a fall of some 16% during the course of the month.

The falls can largely be explained by a range of poor economic data from various sources. In particular, there are obvious concerns relating to the slowdown of the Chinese economy. Disappointing economic data from the US and the continuing Euro Zone crisis are only adding to an uncertain outlook.

The best performance within the region was in Turkey (representing a fall of 11.9%), with Russia seeing particularly poor returns (with a dramatic fall of 19.4% during the month).

Looking specifically at the Russian market, it’s clear that falling oil prices have made a significant contribution there. The managers at Nevsky Capital have, however, decided not to reduce exposure to the Russian market any further. This is due to the fact that expectations are that the oil price will stabilise.

During the course of the month, exposure was also reduced in Hungary. This leaves the fund holding 18.6% in cash by the end of May.

It’s felt that this cash will not be invested until such point as there is an obvious improvement in global economic outlook and market sentiment.