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Markets  |  July 26, 2012 07:52:51

Interview: The countries of Central Europe are similar only communist past

In what state is currently located in Central Europe region, and the potential of this region? The fact we talked with Francis Vobořil, portfolio manager of mutual funds and bond AXA AXA CEE CEE Equity.

Investment guru Mark Mobius has recently expressed his optimistic view of long-term potential of Central and Eastern Europe, particularly with regard to the low level of debt and still cheap labor. What is your view on the region?
My view is similar. Higher competitiveness because of cheap and educated labor force and relatively lower average debt ratio are the main advantages of the region. I would add a stable banking sector. On the other hand, must realize that most Central European countries are small open economy, therefore, should be monitored and potential economic development and the largest trading partners. And in some euro area countries was not so completely not pink.  

What could be the greatest advantage in the future, countries in Central and Eastern Europe, just in comparison with the countries of Western Europe?
We have relatively little debt, low-cost labor market is still relatively flexible. Recent reform measures would, however, much more directed towards the expenditure side, to reduce regulation, the less dependence and greater accountability. Unfortunately, like most Western countries as Central and Eastern Europe the opposite way.

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Foreign investors often perceive the region of Central Europe as a whole, although individual countries (the Czech Republic, Poland, Slovakia, Hungary) for their part, are quite similar. Which are the countries of Central Europe do you think the greatest potential in the next 3-5 years?
You are right, the countries of Central Europe are similar perhaps only a communist past and some language, then they are all members of the European Union. Otherwise, we have export-oriented country and closed, and the Eurozone member countries with their own currency, a country with different levels of debt, with variously oriented governments ...
Otherwise, I think that the perception of foreign investors in recent years and has changed in terms of confidence and stability to keep just the Czech Republic.  
What potential is concerned, Hungary is due to a high enough problems of its debts and Slovakia, in my view suffer for his membership in the euro area and the increase in public debt due to its share of the rescue packages. This is a huge debt burden. The potential lies in the CR and Poland.  

Are there any of these countries in the next 3-5 years increased investment risk (eg increased political instability)?
The biggest risk currently associated with Hungary. First, the region is economically the weakest, the most indebted, still struggling with the high volume of loans in foreign currencies, forcing central bank to keep interest rates at higher levels and thus prevent any weakening of the forint. Viktor Orban's government is also highly unpredictable. Currently it is under pressure from the outside in exchange for financial assistance had to change some of the recently adopted laws, over which Orban certainly gnashing his teeth. Although it currently seems to be the law of the central bank will eventually really changed in accordance with the requirements of the EU and the IMF, I have no doubt that the Hungarian government again in the future something will surprise investors.  

What do you think the medium and long term potential of the Czech Republic?
I try to be optimistic, initial conditions are still relatively good. But if you drown in the regulations, bureaucracy, corruption and high taxes and can not do to reform pension and health system, it can also result in big trouble. I regret that the current government has wasted little reform its potential. Pension reform is a bit dull, interventions in the tax area as well as the oblivious happy. Definitely irritates me the rhetoric of government, when the savings include tax increases. Not to mention the wife of such measures may ultimately be collected no more.

It is our own currency advantage or disadvantage?
From the perspective of government, respectively. funding the state's own currency is undoubtedly an advantage. In the bloated welfare state, where the ruling elite want to survive is nezbytností.Systém fiat money is based on central bank independence. Although in those quiet times as independent faces, in cases like the current crisis, governments come under pressure and in economically advanced countries. Political elites excessively indebted countries will certainly have a greater desire than proper inflation. Inflation and currency devaluation, however, is definitely not good for everyone.
Although I have a theory of fiat money to strong objections, I must say that our central bank is working very well and has a considerable share of the increased confidence of foreign investors in our economy.

Poland was the only member of the European Union at all, which in 2008-2009 to keep from recession. What makes this country different from other members of the European Union?
Poland is insulated to some extent their closeness. Of course now I can answer that Greece is much more closed. Compared to Greece (and other southern states), however, Poland has the advantage of low debt and the fact that in the past, interest rates compared to the euro area in the south wing of the appropriate (read: higher) level. Preventing overheating, and debt bubbles in asset markets and today nedoplácí contraction in domestic demand.

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As portfolio manager of two mutual funds focusing just on the region (CEE Equity AXA, AXA CEE Bond), what would you say to people considering investing in the region and should be managed directly through your mutual funds?
First, it is necessary to think about what level of potential losses are much spoil the mood and will not jeopardize our operation and when we need money. We live in a time when it is difficult to predict what new measures are baked on the weekend. In this volatile environment, you can quickly earn, but also very fast for good money to come.Growth potential and risks of CEE I mentioned earlier, on the other hand have all eggs in one basket may not be worth it. Clients would have their investment diverzifikovae across the world and across multiple types of assets that are the least correlated.

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