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Karine Hirns bild

Grand opening of our shopping centre in Kyiv
Karine Hirn
2010-03-31 (Comments)

It is a difficult time for the Ukrainian economy which contracted not less than 15% in 2009 and Ukrainian retail sales continue to look weak, as private consumption suffers from falling income and rising unemployment. However the pace of decline is decelerating and for some of our portfolio companies business is definitely picking up.

Last week our colleague Biljana Bozic, who heads our real estate operation, participated in the grand opening of the Modul shopping centre in Kyiv. 

East Capital is majority shareholder in this shopping centre. It is part of our property and project portfolio which in total consists of 12 shopping centers and retail big box properties across Ukraine. Modul is part of Cantik, where we also have a shopping centre in Simferopol and two big box retail properties in Lviv and Kyiv. As you can see on the pictures the opening day was a big success.

 
Taggar: Consumption, Ukraine | (Comments)
Marcus Svedbergs bild

The Estonian Way
Marcus Svedberg
2010-03-31 (Comments)

It is difficult to not be impressed by Estonia. The country was outperforming during the good times and is doing the same during more difficult times.

The small, open Baltic economy was obviously on overdrive before the crisis and the economy busted. A lot has been said about the mistakes made by companies and consumers during the boom years and policy-makers have received their fair share of the blame (together with Nordic banks), but it would be a mistake to dismiss the Estonian economic model. Because the very same companies, consumers and policy-makers have shown a remarkable resilience to ride out the storm and get the economy back on track again. Last year, the economy contracted 15% and the budget was tightened by 9 percentage points – without any major political or popular protests. Few other countries in Europe, let alone the most vulnerable ones in Southern Europe, seem to be even close to pulling that off. So the Estonians clearly have something to teach the Greeks and other profligate Europeans when it comes to belt-tightening.

The correction during the last 18 months have eroded the previous imbalances – the current account is in surplus and inflation is very low – and the economy has started to pick-up with the most ambitious forecasters saying 2% growth this year and 5% in 2011. But the biggest accomplishment is arguably that Estonia fulfills all the Maastricht criteria and will be invited to adopt the Euro in January 2011 – unless the existing members find a poor excuse to keep them out, which is very unlikely. Estonia should actually be used as an example within the Eurozone on how to streamline budgets. Interestingly enough, tiny Estonia would be one of only two countries in the Eurozone fulfilling the Maastricht criteria. The other one is the even smaller Luxembourg but its Minister of Finance is chairman of the Eurogroup, so small prudent countries could, and arguably should, play an important role in the club. 

Taggar: Baltic | (Comments)
Vesna Luccas bild

A good year for Turkey? Bank on it
Vesna Lucca
2010-03-26 (Comments)

Jacob Grapengiesser, partner of East Capital, gives his view on Turkey and the recent political noise and that the key factor for 2010 will be Turkey's banks. Earlier this week Jacob wrote the editorial A good year for Turkey? Bank on it in Business New Europe.

"I think the political situation is certainly a matter to keep an eye on, Turkey has proved to be a place where this issue is always present, so I wouldn't say it's much worse this time around than it has been in previous years."

He continues, saying that key to the Turkish market in 2010 will be if the country's banks can repeat the fantastic year they enjoyed in 2009. Investors are asking themselves if the profit growth is sustainable, or if it was a one-off? 

Jacob’s four key points for Turkey 2010

  1. The political situation is not as bad as it's being portrayed in the international press; 
  2. Large-cap stocks trading under a PE of 10x with excellent potential over the next five years; 
  3. Some inflows into Turkey from other emerging market regions; 
  4. A new interest rate environment that is changing the rates at which banks can lend. Usually markets can revalue when you have that situation.

Read Jacob’s editorial on Turkey in bne

Taggar: business new europe, Jacob Grapengiesser, Turkey | (Comments)
Marcus Svedbergs bild

Signs of sentiment change towards Eastern Europe
Marcus Svedberg
2010-03-21 (Comments)

We have been arguing for a while that the sentiment towards Eastern Europe is slowly turning for the better. Policy-makers and citizens in the east are increasingly getting credit for the way they have been riding out the crisis. The trend can be observed in several indicators.

For one, the cost of insuring against default – the so called CDS spreads - have dropped markedly throughout the region and are back at pre-Lehman levels.

Another telling sign is that global funds flows to the region have picked up considerably. Eastern Europe only received 3% of the regionally dedicated flows to emerging markets last year even though the markets were overall quite strong. The corresponding number for the first months of this year is over 30%. 

It is also possible to illustrate how the sentiment is turning in less numerical, but perhaps even more convincing ways, i.e. how the media is describing the situation in the region. In late February last year, the Economist ran a couple of doomsday articles with one heading exclaiming “Can eastern Europe avoid meltdown” and arguing that “Eastern Europe’s woes are not unmanageable. But they are not being managed. The result could be catastrophe” as well as “If eastern Europe goes down, it may take the European Union with it”. Today, a year later, the same publication is arguing in an editorial under the heading “What went right” that “if Spain, Portugal, Italy and Greece want a lesson in how to take hard decisions, they should look eastward”. The Economist is arguing, with a dose of self-criticism, that “the fears were partly overblown” and that the response from domestic policy-makers and the support from international institutions have been key in managing the crisis.

Taggar: Eastern Europe, sentiment | (Comments)
Marcus Svedbergs bild

Minority government in Latvia
Marcus Svedberg
2010-03-18 (Comments)

The People's Party in Latvia left the government yesterday. The decision is likely a way for the largest of the five coalition parties to distance itself from the implementation of the budget cuts leading up to the parliamentary elections in October.

It was expected that the populistic People’s Party would leave the coalition, although the move came earlier than expected. So this is more of a positioning for the elections than a government crisis. PM Dombrosky is expected to stay and will lead a four-party minority government. The most important political issue is the IMF program - but there is no immediate concern related to that since all decisions for this year have already been passed by the parliament. Implementation can be difficult but it seems like parties and policy makers are getting credit for acting responsible and two opposition parties declared support for the government’s efforts to implement the IMF conditionality.

 

Taggar: government, Latvia | (Comments)
Peter Elam Håkanssons bild

Fresh impressions from Russia
Peter Elam Håkansson
2010-03-05 (Comments)

In the latest Newsletter I report from our recent trips to Russia and numerous meetings with local companies. There are quite a few interesting reflections to make regarding various sectors and the Russian economy.

Read my editorial (written onboard flight OV 683 from Tallinn to Stockholm)

Taggar: Newsletter, Russia | (Comments)
Marcus Svedbergs bild

Romanian Recovery
Marcus Svedberg
2010-03-03 (Comments)

We often claim that it is wrong to group all countries in Eastern Europe together, thus making it difficult to answer one of the most frequently asked questions: what is going on in Eastern Europe? One can, of course, argue that the entire region is recovering from the crisis. That is not untrue, but the way, and at what speed the countries are recovering are quite different. And they were affected rather differently by the crisis.

Hit hard by the crisis

Take Romania as an example. This large Southeastern European country was behind the business cycle and managed to grow longer and stronger than most other economies in the region in 2008 (Q32008 GDP growth was 8.2% y-o-y). It shared some of the economic anomalies with the smaller economies of Bulgaria and the Baltic States:  high inflation, a widening current account deficit, booming credits with a currency mismatch . The imbalances never reached the same levels but the economy was nevertheless hit very hard by the crisis. Investors lost confidence in the currency, which is not pegged, and in the stock market, which is large compared to Bulgaria and the Baltics. The market plunged 75% in 2008 and the economy contracted 7.2% in 2009. The IMF came to the rescue with a large stand-by agreement, but it was frozen by the end of last year following the lack of decision-making in connection with the presidential elections.

Fresh insights from Bucharest 

So, things looked quite bad when we scheduled a research trip to Romania before Christmas. We visited Bucharest last week and can conclude that a lot of things have happened in the past two months. The president was re-elected, a new government is in place, the budget has been approved and the IMF has resumed its program. Moreover, the global as well as the Romanian economy has recovered faster than previously expected, but neither will grow close to potential this year. And what makes Romania different from many of the other economies in Eastern Europe is that growth is expected to stay rather muted in 2011. The budget consolidation plan is rather tough and will put pressure on domestic demand for quite some time. Exports have started to pick up and the depreciation of the currency has made Romanian goods quite competitive. But it is not a very export-oriented economy, so it cannot lift growth to higher levels without support from domestic consumption and investment. 

The market has been performing relatively well during the past months on the back of the improving political and economic situation. It may continue to perform from its low base but may need a trigger to really get investors to come back. And that trigger came closer to materializing on Thursday when the government signed the long-awaited contract with Franklin Templeton for the management of Fondul Proprietatea, the EUR 2.4bn restitution fund, which is generally regarded as an important step to a listing on the Bucharest stock exchange. An IPO of Fondul Proprietatea would be important in its own right as volumes and liquidity would get a healthy boost but it could also serve as a wake-up call for other stocks. 

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Peter Elam Håkanssons bild

Baltikum börjar röra sig…
Peter Elam Håkansson
2010-03-02 (Comments)

Intresset för att investera i Baltikum återkommer på flera fronter. Vi har fått stänga vår Baltikumfond två gånger sedan i höstas för att intresset helt enkelt har varit för stort. Fonden är med en uppgång på 16,36% i år en av de bästa aktiefonderna.

Är det då rätt att redan nu börja investera? Visst finns det fortfarande en hel rad risker i alla världens ekonomier just nu och när det dessutom finns skulder med i bilden bör man alltid vara extra försiktig. Men för den långsiktige investeraren finns det skäl att titta närmare på Baltikum. Det verkar som om Estland kommer att kunna konvertera till Euro på nuvarande växelkurs från 1 januari. Lägg därtill snabbt uppjusterade BNP-prognoser för hela regionen och det börjar se intressant ut.

När vi var i Tallinn härom veckan besökte vi bland annat Tallinna Kaubamaj, ett av våra största innehav i Baltikumfonden och bilden av en förbättrad ekonomi bekräftades definitivt. Denna bild förstärktes ytterligare av våra diskussioner med hotell - och restaurangoperatörer i området.


Tallinna Kaubamaja - företaget och varuhuset firar 50 år		  
Två East Capital-anställda, Julianna Sosnovska och Tania Ivanova, på besök hos företaget.
Taggar: Baltikum | (Comments)
Marcus Svedbergs bild

Mixed blessing in Greece
Marcus Svedberg
2010-03-01 (Comments)

It should not come as a surprise that the EU now also extends monetary (and not only moral) support for the struggling Greek economy. Although the final structure of the plan is not yet known (will most likely be through loan guarantees to European banks buying Greek bonds) it is clear that the financial support comes hesitantly and should be regarded as a mixed blessing.

It is good because it will reduce the short term anxiety on the financial markets since the package will prevent Greece from defaulting on its debt. It is bad because it enforces the dangerous moral hazard problem within the Eurozone and hardly solves the real debt problem in the Eurozone.

Strong signal needed for the Eurozone
One could make a parallel to the bail-out and stimulus packages in 2008-2009 as these solved the current problem (the financial and economic crisis) but only aggravated the structural debt problem. Just as many banks were deemed too big to fail, so is Greece regarded as too big to default for the Eurozone. Germany and the other creditors will likely put a lot of pressure on the Greek government to not only draft, but also implement the necessary tough fiscal cuts. But the question is whether the signal will be strong enough for all other governments in the Eurozone. Because the real problem is that almost all countries in the Eurozone break the rules set out in Maastricht (Greece is the worst offender though). So all countries need to cut expenditure and/or raise taxes in order to get the budgets under control and, in the longer term, reduce the debt burden. 

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Om bloggen

Långsiktighet och lokal närvaro är grunden för East Capitals investeringsfilosofi. I den här bloggen vill vi dela med oss av aktuella insikter från Östeuropa & Kina och dess investeringsklimat. Engelska är gemensamt för de flesta av våra investerare och är därför det främsta språket för blogginläggen.

Bloggpolicy

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Våra bloggare

  • Karine Hirns bild
    Karine Hirn

    Partner och Chief Representative, Shanghai-kontoret. Karine bloggar om East Capital, våra fondprodukter och ger direktrapporter från Shanghai.

  • Marcus Svedbergs bild
    Marcus Svedberg

    East Capitals chefekonom fokuserar på makroekonomi, analyser och omvärldshändelser som påverkar utvecklingen i regionen.

  • Vesna Luccas bild
    Vesna Lucca
    East Capitals kommunikationschef skriver främst om East Capital som företag och aktuella mediefrågor.
  • Kristina Sandklefs bild
    Kristina Sandklef

    Kristina, makroekonom Asien, delar med sig av sina erfarenheter och analyserar trender och händelser som påverkar Kina.

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