East Capital New Europe

East Capital New Europe Fund declined 0.5% during the quarter, underperforming the benchmark by 2.5%. The key movements across our markets during the quarter were strong performances in Turkey (+14%), Romania (+12%), Kazakhstan (+12%), Slovenia (+10%) and Hungary (+5%), while we saw flat performance in Poland and corrections in Czechia (-10%) and Greece (-7%).

On the macro front, Poland entered 2026 with strong momentum, supported by consumption and improving investment, with GDP growth of 3.6% in 2025. Inflation declined to around 2.1%-2.2% year-on-year early in the year, giving the central bank room to ease policy, while a temporary increase in March to around 3% was largely energy-driven and is not expected to trigger tightening. The macro backdrop remains supportive, aided by EU fund absorption and accommodative policy. The negative impact on growth is expected to remain limited even if energy prices stay elevated in the near term. We expect GDP to grow 3.5% year-on-year this year.

Greece continued to show resilient growth, with GDP growth of 2.1% in 2025, supported by consumption and investment, outperforming the EU average. Improving labour market conditions and EU-funded investments are expected to support stable growth into 2026. A key development is the transition from EM to DM, with MSCI set to fast-track reclassification. This is expected to concentrate inflows into a small number of large-cap companies, particularly banks. We have adjusted positioning accordingly by reducing exposure to corporates and increasing exposure to systemic banks. 

We believe Piraeus Bank is the most attractively valued among the four systemic banks in Greece, trading at 7.5x P/E and 0.9x P/B for 2026. We expect 10% EPS growth and a 12% ROE.

We also favour the challenger bank Optima, which is one of the best-performing names in the portfolio in Q126, trading at an attractive 9.7x P/E and 2.3x P/B for 2026. We invested in Optima at its IPO in 2023, and the bank continues to deliver strong growth. We expect 13% EPS growth and a 23% ROE, the highest among Greek banks.

Regarding Russia-Ukraine peace talks, several meetings and negotiations took place during the quarter, but no concrete conclusions have been reached. We remain constructive, and the recent joint Russian-Ukraine commitment to observe a ceasefire over the Orthodox Easter holiday may indicate continued willingness to reach a deal. We continue to position the portfolio for a potential peace agreement and expect progress in the coming months.

Another important development during the quarter was the upcoming parliamentary elections in Hungary, scheduled for 12 April 2026. The most recent independent polls show the opposition Tisza party leading by 10-12 percentage points, which, if confirmed, may be sufficient to defeat the incumbent Fidesz party and end its 16 years in power. An opposition victory may improve relations with the EU, enable the release of EU funds of up to 3% of GDP that are currently frozen, and reduce the country risk premium. We are positioned for this scenario with an overweight in the market and our largest holding in OTP Bank. We continue to favour the company given its exposure to both the Hungarian market, with accelerating loan volumes, and underbanked Balkan countries. The valuation remains attractive at 8.9x P/E and 1.7x P/BV, with an expected ROE of 21% for 2026. Two potential catalysts for further re-rating are an end to the war in Ukraine, given the bank’s Russian exposure, and an opposition victory in Hungary, which could lead to a lower risk premium.

Turkey remained resilient in Q126, despite the nearby conflict in Iran. Although the market has pulled back slightly since the start of the conflict, Turkey remains one of the best-performing markets in our Eastern Europe universe, delivering +14% year-to-date in USD terms by quarter-end.

More recently, discussions around a potential ceasefire in Iran, combined with a better-than-expected inflation print in March (+1.9% m/m versus 2.4% expected) despite higher energy prices, are expected to support a strong rebound in the Turkish market. Inflation remains a key risk, but disinflation is still on track and continues to be the core focus of the Turkish economic management team. As disinflation continues, the economy is still growing at a relatively fast pace. GDP grew by 3.6% in 2025 and is expected to grow by a further 3.4% in 2026. This balance has been successfully maintained so far, supported by positive real rates and a stable lira.

We expect Consumer Price Index (CPI) to reach 26% and the benchmark rate to decline to 32% by the end of the year, implying an additional 600 bps of rate cuts. The size and timing of these cuts will depend on the resolution of the conflict in Iran. We continue to focus on identifying high-quality companies with structural tailwinds in Turkey that can deliver real growth.

One such company is Enka, a Turkish construction group with hard currency revenues and strong growth momentum. It is also a key beneficiary of a potential resolution to the Russia-Ukraine war, given its significant real estate operations in Russia, which maintain high occupancy of 99%, albeit at lower rental rates than pre-war levels. A normalisation of rental rates represents significant upside for the real estate segment. In addition, the construction division is well positioned to capture a meaningful share of currently paused oil and gas projects in Russia if the conflict is resolved.

Even under current conditions, with no change in the conflict, Enka’s EBITDA is expected to grow by 20% in USD terms in 2026. The company trades at 13.6x P/E and 7.8x EV/EBITDA, with a dividend yield of 3% for 2026, and was one of the best-performing holdings in the fund for Q1 2026.

Another portfolio company with strong real growth in Turkey is MLP Care, the largest hospital group in the country, which has delivered robust growth over several years. Following government price increases of around 30% for the SSI basket in December, along with successful negotiations with private insurance providers, the sector outlook has improved further. We expect 15% real EBITDA growth and 42% EPS growth. MLP Care trades at an attractive 10.0x P/E and 4.0x EV/EBITDA for 2026.

We continue to focus on selecting high-quality companies with strong growth and solid balance sheets. East Capital New Europe is trading at 8.4x P/E based on 2026 forecasts, with earnings growth of approximately 16% year-on-year and a dividend yield of around 5.4%. A potential end to the Russia-Ukraine conflict could reduce risk premiums and yields, which may support equities in the region.

Performance in USD net of fees.

The information in this document should not be considered investment advice and should not be used as the sole basis for an investment decision. Please read the Prospectus and the KID, which are available on the fund page. This publication is not directed at you if we are prohibited by any law in any jurisdiction from making this information available to you and is not intended for any use that would be contrary to local laws or regulations. Every effort has been made to ensure the accuracy of the information, but it may be based on unaudited or unverified figures or sources.