Emerging Europe Resilient: Schroders

Emerging Europe remains resilient to the Eurozone crisis, says Schroders. Regardless of the well publicised challenges facing the Eurozone and the negative impact on perceived risk assets, the MSCI EM Emerging Europe 10/40 Net (TR) index has increased in value by 11.4% per annum over the last three years.

Thus, despite the relatively close geographical location of some of the smaller markets to the Eurozone such as Hungary, Poland and the Czech Republic (which together stand for approximately 23% of the index), the region on aggregate has delivered strong returns for investors. In fact Emerging Europe has outperformed broader global emerging markets over the past three years.

Schroders’ head of Global Emerging Market Equities Allan Conway said: “We take a broad definition of EM Europe which includes Russia, Turkey and Egypt and even some frontier markets such as Kazakhstan and Georgia. This diversification has allowed the strategy to achieve consistently excellent absolute and relative returns despite the sometimes challenging global market backdrop.

“The outlook for Emerging Europe on a stand-alone basis is positive. Valuations are attractive, trading on around 6.5 X price-earnings ratio, a 60% discount to their GEMs peers. Government, corporate and household balance sheets and their fiscal position are generally strong, especially when compared to the developed world. On a country basis we are finding Turkey attractive but also countries such as Egypt, Kazakhstan and Georgia remain compelling for stock-specific reasons.”

The Schroder ISF Emerging Europe Fund returned 13.8% pre annum over the past three years and is first quartile across all time periods one through five years to August 31 2012. Over three years, the fund has been the best performing fund in the Morningstar Emerging Europe peer group comprising over 90 managers.