East Capital Balkans

East Capital Balkans Fund delivered a return of 0.4% this quarter, with good performances across key constituent markets: Turkey (+14%), Greece (-7%), Hungary (+5%), Romania (+12%), Slovenia (+10%).

Turkey, the largest country exposure in the portfolio (37.4%), remains resilient. Despite macroeconomic pressures and a risk-off sell-off driven by the conflict in Iran, Turkey still delivered +1.9%, outperforming our Greek and Hungarian holdings. The country’s economic management team continues to successfully balance disinflation with relatively strong growth, while defending the lira and navigating monetary policy in a complex geopolitical environment.

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. We continue to focus on identifying high-quality companies with structural tailwinds in Turkey that can deliver real growth.

Highlights in Turkey for Q1 2026 included Enka (+16.2%) and BIM (+21.7%). Enka benefited from expectations of a resolution to the Russia-Ukraine conflict, given its real estate exposure in Russia and potential participation in oil and gas projects if activity resumes. We continue to view Enka as a high-quality growth company, with EBITDA expected to increase by 20% in USD terms in 2026. The stock trades at 13.6x P/E and 7.8x EV/EBITDA, with a dividend yield of 3% for 2026.

BIM performed strongly following robust Q4 2025 results, with full-year EBITDA growth of 47% in real terms and benefited from its positioning as a defensive play during periods of higher inflation, as the country’s leading discount retailer. We continue to see an attractive risk-reward profile, with the stock trading at 13.9x P/E and 7.3x EV/EBITDA and offering a 7% dividend yield. We expect a further 13% real EBITDA growth in 2026.

Greece, the second-largest exposure in the portfolio (26.9%), continued its growth momentum. GDP expanded by 2.1% in 2025, supported by private consumption and increased investment. Greece also outpaced the EU, which grew by 1.5%. CPI was 0.3% month-on-month in December and 2.6% year-on-year. Improving labour market conditions, rising real incomes and ongoing EU-funded investment projects support continued stable growth into 2026. However, the potential impact of the Iran conflict, particularly on tourism, and longer-term fiscal discipline remain important factors to monitor. A key development is Greece’s expected transition from emerging markets to developed markets status, with MSCI set to fast-track the reclassification later this year.

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 Q1 2026, 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.

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.

Elsewhere, Romania was the best-performing country in Q1 2026 (+16.6%). Banca Transilvania was the strongest contributor within our Romanian holdings (+18.0%), trading at 8.2x P/E and 1.6x P/B for 2026, with a 19% ROE, offering an attractive valuation. Another notable holding, MedLife, rose by 15.6% in Q1 2026.

Slovenia also delivered strong performance (+12.6%), driven by key holdings NLB (+12.5%) and Krka (+12.5%). We continue to favour NLB, supported by expected strong loan growth across the region. The stock trades at 8.5x P/E and 1.1x P/B, with a 13% ROE and a 7% dividend yield for 2026. Krka trades at 12.2x EV/EBITDA, with expected EBITDA growth of 6% year-on-year and a 4% dividend yield for 2026.

Overall, we remain constructive on the region and continue to maintain selective exposure to high-quality companies with strong fundamentals. The portfolio is focused on businesses with robust balance sheets, sustainable earnings growth and disciplined capital allocation. We continue to engage actively with management teams, monitor macroeconomic developments and adjust positioning to capture upside while managing downside risks. The region remains an attractive investment destination, offering diversification, compelling valuations and long-term growth potential. The Balkans Fund trades at 8.6x P/E, with expected earnings growth of 14% year-on-year for 2026.