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PrintNov 05, 2007
• Growth in emerging Europe dependent on the ‘3 C’s’
• JPM New Europe Fund returns over 417% over 5 years
JPMorgan Asset Management (JPMAM) says markets in emerging Europe are showing no signs of a slowdown and is bullish about long-term prospects in the area, especially in Russia and Turkey. JPMAM have cited what it calls the ‘3 C’s’ as the main drivers behind future prospects in the region.
The ‘3 C’s’ are Commodities, Convergence and Consumption and each, JPMAM believes, is essential to the sustainability of growth in Eastern Europe. Commodities dominate the region and while this domination may create fluctuations around the upward trend in the short-term, the export revenue from natural resources has clearly enhanced the region’s macro situation, especially in Russia. The revenue from natural resources has, and continues, to stimulate consumer and domestic infrastructure spending further driving economic growth.
This brings us on to the next ‘C’ – Consumption – which is increasing at a huge pace with a growing percentage of the population accumulating a greater level of wealth. This is largely due to the third ‘C’ – Convergence. Convergence with respect to a move towards developed markets levels of penetration in sectors such as financial services, organised retail and mobile telephony and more specifically, convergence to the EU or EMU. Poland, Hungary, the Czech Republic and Turkey are all beneficiaries of the structural reforms undertaken as part of the accession process in terms of greater productivity and the development of a better environment for business. Convergence has already been proved a successful process in the likes of Portugal and Ireland and their eastern European counterparts look set to benefit too.
Sectorally speaking, the JPMAM New Europe team are betting against the Russian energy sector and export orientated industries. Instead they favour domestic consumption plays and materials, taking advantage of the current real estate boom in the region - an effect of real wage increases - and high level of spending in infrastructure. Russia, in particular is set to benefit having won the bid for the 2014 Winter Olympics.
The £150.7m fund, managed by Oleg Biryulyov and Amr Seif is top quartile over 1, 3 and 5 years having returned 45.21%, 176% and 417.8%* respectively.
Claire Simmonds, Client Portfolio Manager of JPM New Europe Fund comments: “All in all, there are many compelling arguments for emerging European stocks at the moment. Materials and infrastructure are good prospects and the Convergence story is a tried and tested process offering long-term investment opportunities with close to developed markets risk but with emerging market growth. It’s not so much the destination itself that is key, but the path to convergence – that is where the best opportunities lie. On a regional level, prospects are dominated over the near-term by politics with parliamentary elections in Russia this December and Presidential elections due at the beginning of 2008, but the long-term macro-economic position still looks very sound.”
* as at 1st November 2007