Blog posts by Peter Elam Håkansson

Our Russian Fund and Eastern European Fund have provided 24% respective 23.4% in average returns since inception.

This period includes two of the largest falls in the stock market for the Russian Fund and one of the largest for the Eastern European Fund. Volatility has been extensive, but with a long-term perspective the returns have been very good, and a long-term perspective is exactly what pension savers should have. Therefore, we believe that these funds are well-suited for pension savings. Imagine our surprise during the year when we read in various Swedish advertising campaigns that it is better to have an annual consistent return of 4% than 24%. It is obvious that this cannot be the case. It is only beneficial to invest in a fund with a low absolute return if you would like to withdraw the entire savings precisely during a year when the stock market has fallen. Furthermore, it is reasonable to assume that those who are saving for their retirement do not want to withdraw their entire savings on the day that he or she retires, but instead choose to receive payments for many years to come.

Unfortunately, there are many people who do not understand this, which means that they have yet to start saving in the fast growing economies in the world. Only a small portion of the world’s pension funds are invested in Emerging Markets. One study of British pension funds showed that less than 5% of equity investments are in so called Emerging Markets. Today Emerging Markets equals 13.1% of index, which is a strong increase compared to the level ten years ago. At the end of 2002 the level was 3.8%. Thus, British pension savers today are already considerably underweight in the fastest growing parts of the world, which does not serve them well.

Don’t wait too long to correctly invest your pension for the best future development.

Peter Elam Håkansson
Written on flight SQ 352 (Singapore Airlines) between Singapore and Copenhagen.

The government has drawn up a long term strategy to attract foreign investment into a number of targeted sectors. The timing is good as more and more investors are starting to look at the Baltic states again after having been out of investor radars during the economic crisis. Lithuania and the other Baltic states are starting to get credit for having implemented such tough fiscal consolidation and there are even voices suggesting that Eurozone members should go on a study trip to Vilnius.

We stressed the need to not only attract more foreign investors but also to build up a local investor base. The past years have stressed the importance of having large domestic funds investing into the market in order to reduce the reliance of foreign investors, which can be volatile in turbulent times. With many Lithuanians in the company, we consider ourselves locals and are very long term investors.

We thus very much support the government’s plan and look forward to continue to cooperate with both public and private institutions in Lithuania.

A large number of relevant questions were posted and we moved quickly around East Capital’s investment universe to cover as many of them as possible.

China was the first region to be brought up. This was specifically relating to East Capital’s recently signed acquisition of the Chinese dedicated asset manager Asia Growth Investors. Commenting on “Why China?” my short answer is that China is impossible to ignore when investing in Eastern Europe and that there has been, and certainly is a clear linkage between Russia and China. 

As usual Russia was brought up by many web TV viewers and among many other topics we discussed its main growth drivers and our favoured stocks.

The buzzword in Moscow is 'modernisation', as in modernisation of the economy and of the political system, through economic reform, fighting corruption and the move to democracy. The modernisation of such elements provokes much more positive feelings that will help Russia in maturing as a serious contender.

The successful return to the sovereign debt market also stands to benefit Russian equities.

Other markets we discussed were the Baltics, Turkey and Poland for which we pointed out opportunities as well as potential risks.

The tragic and unexpected death of the Polish President, Lech Kaczynski, has had little effect on the Polish economy. A brief blip in the currency markets in the days following, but little volatility. This shows the strength of the economy and the development of Polish institutions. Growth in 2009 has resulted in a more steady recovery and more stable market.

Growth in the Baltics is being revised and has been low but without doubt, better than expected. For example, Estonia has already met the formal criteria for the Eurozone and this has had a positive effect on its stock market, reducing market uncertainty. The impact of accessing the Eurozone will have more longer-term benefits.

Turkey is a country still very much on the East Capital Universe radar. It is area for long term focus as it is supported by what is now a remarkably strong demographic profile. The fruits of lower interest rates and inflation, coupled with a growing population, will have a profound effect on the economy.

We also commented on the less performing markets such as Greece, Slovakia and Slovenia and their relation to the Eurozone.

See all the topics and watch the programme at www.eastcapital.com/live