Emerging markets: where will they head this year?

It’s tempted to think about emerging markets as offering the best prospects for growth in 2014. It’s certainly been the case that many positive investors have been happy to buy shares in India and associated countries.

But there are also fears, particularly surrounding Asian economies. In recent years, many countries in the region have been able to reap the benefits offered by foreign investment. What happens, however, if that capital starts to get removed? It’s an interesting question and one that is causing some concern right now.

We should also probably stop at this point to state that there is also an issue surrounding just how positive all that investment has been. The exploitation of natural resources, for example, has not always been welcomed by environmental groups. Although we may primarily, within the pages of this blog, concern ourselves with finance and investment issues, it’s also clear that we can’t ignore wider problems.

So what may happen? The fears are not restricted to a single nation and it’s noted that there are worries surrounding the value of Argentina’s currency. Should we be any less concerned about the sort of political instability that is to be found in Egypt? What happens if the commodities produced in Brazil see a fall in value?

Of course, having the confidence to answer such questions almost immediately means that you will be involved with making predictions and deciding on individual investments. It’s an area that some of us are rather wary of. After all, there are often other events that take over.

This may help to explain why many Fund Managers find themselves spending a lot time thinking about politics. A failure to understand the risks that are associated with political decisions would mean that it would be absolutely impossible to make informed decisions about investing in those very markets.

If you want to buy shares in a company in Turkey, for example, then how could you seek to do that without knowing how the central bank in that country has been behaving? This is probably a good argument for making use of the expertise offered by those in senior positions at Nevsky Capital and other such investors.

What it does mean is that we seem to be facing a period of some uncertainty. It’s often stated that markets are rarely keen on uncertainty and this can certainly be seen to be true. How you go about thinking about these issues may be rather central to your own aims for the coming year.

Nevsky Capital – Eastern European Fund – February 2013

We take a look back at the performance of the Nevsky Capital Eastern European Fund during the course of February 2013. Regular updates of this nature are also available via the official Nevsky Capital website (https://www.nevskycapital.com) and are distributed via a variety of financial publications – both online and offline.


During February 2013, emerging markets were seen to under-perform global market. This particular region suffered more than most, partly due to the continuing uncertainty surrounding the Euro and oil prices, both of which slipped during the course of the month.

As a result of these conditions, the Fund fell by 3.2% over the month. This still reflects an over-performance of 0.5%, when compared to the peer-group average.

Individual markets

Given the spread of associated investments, the headline figures only tell part of the story. Of the markets that are represented, Turkey saw the best overall performance. When measured in US$ terms, there was a decrease in value of 1.6%.

When examining why Turkey performed more strongly than other markets, a number of factors can be identified:

  • There was a relative improvement in trade data.
  • There were continued portfolio inflows.
  • There were advantages as a result of the declining oil price.

The Fund may be seen as being slightly under-weight within Turkey, but investments in telecommunications and the financial sector have paid results here.

Russia was seen to under-perform, although individual stock picks once again brought benefits. In particular, telecoms holdings offered opportunities within the Russian market.

Financial facts

At present, cash stands at 5%. The total value of the fund is $598.6 million and the annualised rate of growth is 19.3%. The top 10 holdings include Gazprom, Sberbank, Rosneft and Novatek.

Eastern European Fund – November 2012

Looking back on October 2012, there’s a clear impression of a relatively quiet month on the markets. Overall, the fund saw growth of 0.74%, which compared favourably with the peer group average (a fall of 0.49%).

The best performing market was Turkey, where a rise of 10.4% during the course of the month was of benefit to the fund.

At the other end of the spectrum, the performance of the Russian market was disappointing, with a decrease of some 3.4% (in US$ terms). Fortunately, the fund was able to take advantage of strong stock selection within the oil sector.

The announcement that Rosneft (the state-backed company) was buying TNK from BP and its Russian owners, brought welcome news.

Overall, the fund holds 56.7% within Russia, 13.9% within Turkey and 9.9% in Poland. Further holdings are present in Hungary, the Czech Republic and Kazakhstan. A further 9% of the overall allocation is in the form of cash.

Looking at key metrics for the fund, it can be seen that an annualised return of 19% has been produced since the launch of the fund in 2000. The fund has a total size of almost $585 million and almost 36% of holdings are within the Energy sector.

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.

Eastern European Fund Report – June 2011

A difficult month for global markets saw the MSCI Emerging European Index fall by some 6.8% (in US$ terms). By comparison, the Eastern European Fund, from Nevsky Capital, saw a fall of 6.3%.

Taking the region in its entirety, it’s clear that Central Europe saw the best performance, with the Polish market stronger than elsewhere. Indeed, the fall of 3.7% in Poland during the month of May is something that really catches the eye.

The fund managers have decided to increase the Polish exposure, although there is still a feeling that the market is not particularly attractively valued. The increasing exposure can mainly be seen as a case of identifying selected companies with more attractive valuations.

One disappointing market was Turkey, which saw a fall of 13.3% during the month. This may be seen to be reflection of domestic economic policies that have led to rising prices domestically, with inflation hitting a rate of 7.2% in May. Given this situation, the fund managers reacted by decreasing exposure to this market.

Overall in May 2011, the fund had 59% of investment allocated to the Russian market, with 12.3% allocated to Poland.

Since the foundation of the fund, an annualised return of almost 23% has been achieved, based on US$ terms.