East Capital Balkans

East Capital Balkans fund delivered an impressive 19.3% return during the quarter. Strong market contributors included our holdings from Greece (+27%), Moldova (+44%), Hungary (+22%), Slovenia (+21%), and Romania (+18%).

Greece was the best-performing market, with our holdings gaining 27%, driven by investor confidence ahead of its expected upgrade to developed market status, signalling improved economic fundamentals. Fiscal discipline, ongoing reforms, and steady EU fund inflows also supported growth, boosting bank valuations and market sentiment. Banks were by far the strongest performers, up 30-47% during the quarter. Alpha Bank was the best performer, up 47%, due to its lower valuation and increased cooperation and a potential bid from Unicredit. Alpha Bank is one of our larger holdings in the fund and added 16 basis points of alpha. Another strong performer was our largest Greek holding, Optima Bank, up 46% during the quarter. We met all our Greek banks during the quarter on our travels to Greece, and Optima remains our favourite, with one of the highest ROE rates among banks in Europe (24%) and a loan book set to grow by 32% in 2025-26. Furthermore, its EPS is growing by 12%-15%—the fastest in our markets—while the stock trades at 8.3x 2026e P/E. Theon International also performed strongly, up 41% in Q2, on the back of increasing sentiment towards the defence sector and the company’s ability to rapidly expand its backlog and grow sales at 30%+ in 2025, and potentially even in 2026.

Another strong performance came from Moldova, with Purcari Wineries delivering a strong 44% gain this quarter, contributing 1.4% to the fund’s NAV. A long-term holding in our portfolio, Purcari has received an attractive bid due to its leading position as Romania’s number 1 premium wine brand - with a 12% market share - and the largest exporter of Moldovan wine.
The company’s vast portfolio spans 1,450 hectares of premium vineyards across Moldova, Romania, and Bulgaria, with the capacity to produce over 35 million bottles annually. A strategic bid from a Polish FMCG group came at a 49% premium, valuing the stock at 12x earnings—up from a low 8.6x P/E—highlighting the underlying value of profitable, well-positioned companies in the region and crystallising their value for long-term investors like us.

The Turkish holdings underperformed in Q2 2025, posting a 9% gain. Part of our portfolio’s strong performance includes short-term Turkish bonds, some maturing in August 2025, offering yields of 45-49% TRY. One of our top holdings in Turkey, IT company Logo, was up 24%, as the company continues to grow, with  sales up by 11% in real terms, and trading at 6.7x EV/EBITDA. Enka Construction slowed to a 2.4% gain after a strong year-to-date performance, as the stock eased off amid a lower probability of and sentiment towards peace in Ukraine being achieved soon. However, we believe in the company’s strong construction pipeline both in Turkey and abroad, even without Ukrainian projects, with a 32% year-on-year growth in its construction order backlog. We added somewhat to our UW position of Turkish equities in Q2 2025, anticipating a sustained disinflationary trajectory and credible monetary policy following the political turbulence in March and the central bank’s implicit rate hikes to support the currency and reserves. The central bank may warm up to rate cuts in July, which would support Turkish banks and corporates currently struggling in a very high-rate environment.

We remain optimistic and continue to seek the best selection of high-quality stocks demonstrating growth and strong balance sheets. We believe the Balkan region offers a compelling fundamental story at very attractive valuations—20-30% cheaper than both continental Europe and emerging markets—benefitting from the momentum of capital inflows to Europe and emerging markets. The region combines higher growth, significantly lower valuations, and lower trade war and political risks. Moreover, the geopolitical risk premium related to the nearby Ukraine conflict is expected to decline over time, potentially unlocking new opportunities in Ukrainian reconstruction.

East Capital Balkans fund’s 19.3% return in the second quarter reflects our ability to navigate a complex landscape, delivering value through active management. Looking ahead, we are optimistic about key developments in 2025: continued strong recovery and GDP growth, along with increasing inflows to the regions, driven by improved sentiment towards Europe and emerging markets, as well as the potential for a Ukraine peace deal that could enhance stability in Eastern Europe. Moreover, German stimulus is lifting regional GDP, and rising defence spending is boosting defence-related industrials. Despite Türkiye’s challenges, the fund trades at an attractive 9x P/E for 2025, with a 4.4% dividend yield, offering compelling growth potential amid cheap valuations and resilient balance sheets. We remain committed to uncovering high-quality opportunities across this dynamic region.

Performance in USD net of fees.

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