Russian returns dominate Eastern European funds

EASTERN EUROPE – Median returns for funds investing in eastern Europe, particularly Russia, have risen to 55% in dollar terms, whilst investments in the emerging European markets recorded median returns of 26%, according to the latest annual survey of EMEA investments by Standard % Poor’s.

S&P believes the figures for Eastern Europe, which it says contrast significantly with the returns of investments in the developed European markets, are heavily influenced by the strong performance of the Russian equity markets, themselves influenced by rising oil prices.

In addition, S&P claims US interest rate movements affect the Russian markets as much as they do Western Europe, and Russia is benefiting from a lower interest rate environment, despite the slow recovery in the US adversely affecting external fund flows into Russia.

S&P points out that investor confidence in the Russian market has increased so much, that many of the largest stocks in the ROS index of Russian equities are adopting US accounting practices, a move that was anticipated but not this soon.

The recent turnaround in the Eastern European market performance, which recorded a slight loss last year, has seen a number of new fund launches in the region recently by western European asset management groups such as German group, Allianz, French group, BNP Paribas, Austria’s Raiffesen Bank and Swedish asset manager, SEB.

S&P says other fund management groups are increasing their exposure to equities in the region in their existing funds, particularly in those countries that are next in line to join the European Union.

Says James Tew, head of European research at S&P: “EMEA markets remain a small but growing sector. Many investors who have backed them have tended to be well-rewarded for their risk.”

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