Eastern European equities had a mixed year in 2016, with both big winners and losers, but the region remains attractively priced overall, says Morten Lund Ligaard, chief portfolio advisor for Danske Invest’s Eastern Europe fund
, which focuses on Eastern European equities. Morten looks back at 2016 and gives his view on what investors might expect of the region’s equity markets in the coming year.
1. How did Eastern European equities perform in 2016?
"Eastern European equities generally had a very mixed year in 2016. Some markets performed very well, while others struggled. The Russian equity market, for example, rose by around 45% in euro (EUR) terms over the year, while the Turkish equity market, which in our universe is included in Eastern Europe, fell by around 7%. Poland, a relatively stable country, saw its equity prices increase by around 4%."
2. What has surprised you most in connection with Eastern European equities in 2016?
"Russia has been the big positive surprise. I have been impressed by the extent to which the country has managed to adjust to very low oil prices, sanctions and its currency weakening very significantly in recent years. However, a weaker currency has also increased the competitiveness of its exporters, which has created a balance in the economy. The attempted military coup in Turkey was also a major surprise and indeed one of the real shocks of 2016. The coup attempt proved very short-lived, but the fallout for the Turkish equity market has been considerable. Likewise, numerous acts of terrorism have had a seriously negative impact on the country’s equity market, tourism and currency."
3. What are your expectations for Eastern European equities in 2017?
"Equity prices in Eastern Europe will be highly dependent on developments in global equity markets. Our view on Eastern European equities is generally positive, as we assess the region’s equities to be attractively priced overall relative to equities in the more developed economies. Therefore, in our opinion, Eastern European equities have further potential if the global economy continues to grow. Optimism has increased in Russia on the back of Trump winning the US presidential election. Trump has signalled a more relaxed approach to Russia, and the hope is that more sanctions against Russia could be lifted. Certainly the risk of additional sanctions against Russia has diminished."
4. In which sectors or countries do you see greatest potential in 2017?
"We very much look at individual companies, and here our largest exposure is to the financial
sector. That will also apply this year. In many countries the financial sector is very mature and highly developed, but that is not the case in Eastern Europe, so we still see potential here. The same applies to the consumer sector, as the standard of living is generally rising in Eastern Europe, plus we have a positive view on the export sector given the current competitiveness of Eastern European companies."
5. In which sectors or countries do you see most risk?
"One sector we are not very exposed to is telecommunication. The telecoms area is already very developed In Eastern Europe, in fact just as developed as in Western Europe. Hence, we do not have much focus on that sector, even though we do have a few selected telecom companies in our portfolio."
This article does not constitute investment advice. Investing always entails a risk, and return can be negative. Always speak with your advisor before making an investment decision.