Vladimír Urbánek (Kurzy.cz)
Markets  |  December 19, 2012 15:59:58

Pioneer: The outlook for emerging markets in r.2013

iPoint.cz Like the outlook for the global economy and financial markets is our view of the emerging Europe region generally positive. Yes, even in this region are countries whose economy is declining, and there are countries whose interest rates are close to zero and government bond yields are moving at historic lows, but overall offers Eastern Europe, and especially its stock markets, an attractive investment opportunity.

In addition to the classic so-called "emerging market story" - a growing population, growing middle class, rapid economic development and significant investment in infrastructure (particularly in Russia and Turkey), namely the emerging Europe brings investors rather unique mix of relatively stable political situation (especially in Poland and the Czech Republic), an attractive exposure to commodity markets (Russia), connecting
with stable European economy - Germany (Czech Republic, Hungary, Poland partly) - and above all very attractive valuation (PE 5.9, P / BV 0.98; dividend yield of 3.93% - Bloomberg, 17 12th 2012).

The beginning of the year can be a bit volatile, mainly due to problems with the solution of the so called "fiscal cliff." Investors will also be closely monitored for signs of recovery in economic growth, mainly due to the fact that this year's stock market performance was given more political decisions, whether at solving problems in the eurozone or in further rounds of quantitative easing. The potential of emerging Europe is perceived as very attractive thanks to him. In the days preceding quantitative easing, Eastern Europe included, mainly due to strong exposure to the commodity markets, the regions with the highest performance. Other technical factors that should contribute to the good performance of the region, and especially Russia, are also growing dividends, the transition to international accounting standards or modifications of commercial systems and especially vypořádávacích securities.Turkey should benefit from razantního decline in inflation, which opens up further scope for reducing interest rates, and thus the credit growth, and also from the increase in the investment grade rating. Hungary and the Czech Republic will be very sensitive to the reports of German industry. Poland may be temporarily adversely affected by economic slowdown, but the long term becomes very strong and luxuriously independent economy.

But the bond markets in the region, we can see through the extremely good performance in 2012, a rather interesting potential, mainly because it still applies basic economic conditions for a good performance of this asset class: inflation decreases, GDP growth in the long term rather mediocre and central banks are cutting interest rates. High liquidity also contributes to the good performance of regional markets and how to keep a relatively high cash inflows from abroad, as investors still prefer regional, less-indebted economy. But of course, at country level, we find wide variations. The outlook for the Czech bond markets in the region most cautious, because the Czech government bond yields fell sharply and the basic interest rate is effectively zero.However, central banks in Poland and Hungary, wanted to cut rates until the second half of this year, thanks to lower inflation and a weaker makrodatům have an obvious area for further steps in this direction. In the case of Hungary, however, the market is still influenced by some surprising political action and is also dependent on the overall perception of risk. Also, euro bonds, which emits mainly in Slovakia, but also the Czech Republic and Poland, should be stable. Although we do not see much room for further reductions in risk premiums, debt levels of these countries are very low, these bonds are not very liquid, and a number of euro investors invested in Eastern Europe, when reduced exposure to peripheral eurozone countries.

Peter Rabbit
Senior Portfolio Manager, Pioneer Investments Austria GmbH

with contributions Martin Exela (Portfolio Manager, Fixed Income - Global Emerging Market Bond, Pioneer Investments Austria GmbH)

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Pioneer: Výhled pro emerging markets v r.2013

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