Investors Go on a Hot Run in the 'Emerging' East ; Some People Have Trebled Their Money in Central Europe and Russia. Can It Continue?

By Mannion, Jenne | The Independent on Sunday (London, England), October 3, 2005 | Go to article overview
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Investors Go on a Hot Run in the 'Emerging' East ; Some People Have Trebled Their Money in Central Europe and Russia. Can It Continue?


Mannion, Jenne, The Independent on Sunday (London, England)


If you've got a taste for adventure, then head for 'emerging Europe'. Those investors who took the plunge in 2002, and opted for funds pushing money in this area, will by now have trebled their stake " and this strong performance looks set to continue.

There have been two key drivers: the accession of eight central European countries into the EU just over a year ago " Poland, Hungary, the Czech Republic, Lithuania, Slovenia, Estonia, Latvia and Slovakia " and a strong economic recovery in Russia.

There are two main funds that specialise in this region available to private investors: the pounds 340m Jupiter Emerging European Opportunities, which celebrated its third anniversary last month; and the pounds 28m Credit Suisse European Frontiers.

A pounds 1,000 investment in the Jupiter fund three years ago (to 17 October) would now be worth pounds 3,154, after charges and basic- rate tax, according to figures from ratings agency Standard & Poor's. And the Credit Suisse fund would have turned a pounds 1,000 investment into pounds 3,041. The value of both is up by around 50 per cent in the past year alone.

Ingrid Kukuljan, co-manager of the Jupiter fund with Elena Shaftan, says the EU accession is important as it means that Central Europe is far less risky than in the past. Legislation and regulations have been harmonised with those of the EU, leading to better corporate governance.

Mike Lenhoff, chief strategist and head of research at stockbroker Brewin Dolphin, which has recently added the Jupiter fund to its buy list, says these countries aspire to the living standards of the West, which is driving consumption. Meanwhile, their cheap and skilled workforces are helping to attract the overseas investment that will set them on the long-term path to prosperity. Additionally, low taxes and higher spending are resulting in more stable economies.

Gavin Haynes, a portfolio manager at Whitechurch Securities, says economic growth in converging Europe is far outpacing that of the eurozone.

The flipside, though, is that investments are not as cheap as they used to be. 'We have already seen a very strong re-rating in the valuations of shares,' he says. 'For example, the Hungarian and Czech stock markets currently trade at price- earnings ratios [a measure of company valuations] of over 20 times, compared to 10 times three years ago.'

Russia, of course, remains outside the EU orbit, and political concerns have dominated this market over the past few years.

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