East Capital New Europe

East Capital New Europe gained 14.2% during the quarter, outperforming the benchmark by 1.7%. Within our investment universe, the Hungarian and Greek markets were the top performers in Q2 2026, while the Turkish, Kazakhstani and Czech markets lagged behind.

Growth momentum has held up well in Poland. Following an expansion of 3.6% in 2025, GDP rose by 3.5% year on year in Q1 2026, with domestic demand remaining the main driver, while EU-funded investment continues to provide support. Inflation appears to be under control: the CPI increased to 3.2% in April and eased to 3.1% in May, with the increase largely linked to energy and fuel prices. The National Bank of Poland has therefore shifted from an easing stance to a more patient one, keeping the reference rate at 3.75% in June while assessing the impact of the energy shock on inflation and economic activity. Overall, we see that the negative growth impact from higher energy prices will be limited, with consumption, EU fund absorption and investment continuing to anchor the expansion. We maintain our GDP growth forecast of an increase of 3.5% for 2026. During the quarter, we initiated two new positions in Poland. We added Allegro, the country's leading e-commerce platform, at an attractive valuation of 19x P/E and 10.7x EV/EBITDA for 2026, supported by improving profitability and a PLN 800 million share buyback, which has removed the share overhang. We also invested in Creotech Instruments, a Polish space and satellite systems company that is well positioned to benefit from rising European defence and space spending.

Hungary stands out as one of the few markets in Central and Eastern Europe where there has been a meaningful shift in the political landscape. Tisza's supermajority has raised hopes of improved relations with the EU and increased the likelihood of frozen EU funds, equivalent to around 3% of GDP annually, being released again. At the same time, macroeconomic conditions have strengthened, with the Hungarian forint reaching a four-year high and the BUX index trading at record levels. The return of EU funding, combined with the expected removal of windfall taxes, could support an acceleration in GDP growth from below 1% to around 3-4%. While Hungarian equities have performed well, the BUX continues to trade at a 20% discount to the MSCI Emerging Markets Index, suggesting further valuation re-ratings are possible. We maintain our exposure to Hungary through OTP Bank, the country's largest and most profitable bank, and Magyar Telekom. We expect both companies to benefit from stronger economic growth and a more supportive regulatory environment as GDP growth accelerates and regulatory risks decline.

Greece continues to offer a resilient market backdrop, with growth holding at around 2.0%, which is above the euro area average. The MSCI developed market upgrade, scheduled for May 2027, preserves a medium-term catalyst for index flows while easing near-term timing pressure. As inflows to developed markets are expected to focus on large-cap financials, particularly systemic banks, we are maintaining our position in this sector. We also made opportunistic allocations through Greek ABBs during the quarter, participating in PPC's capital increase and Cenergy's ABB. Greek banks continue to benefit from stronger-than-expected loan growth, higher fee income and still-elevated ECB rates. Operating performance is exceeding expectations. Q2 2026 results could prompt upward revisions to guidance. We continue to see re-rating potential across the sector and view Piraeus to be the most attractively valued of the four systemic banks. It has a 2026 P/B of 1.1x, a P/E of 9.6x and an approximate RoTE of 15%. Attending one of Greece's largest investor conferences in Athens in May reinforced our conviction in companies beyond the large-cap universe, particularly Optima Bank. Optima delivers one of the highest returns on equity in Europe and is growing its loan book at more than double the pace of the traditional banks. We forecast loan growth of 28% in 2026, with an estimated RoTE of 28%. With a 2026 P/B of 2.7x and a P/E of 10.3x, we believe that the valuation still does not yet fully reflect its superior growth and profitability. Each meeting with management has strengthened our conviction and led us to revise our outlook upwards.

The Turkish market remained resilient throughout 2Q 2026. Despite domestic political uncertainty and inflationary pressures stemming from the conflict in Iran, the government's commitment to orthodox economic policies remained intact. Disinflation has slowed but remains on track. Inflation came in at 1.7% month on month and 32.4% year on year in May, which is broadly in line with expectations. June inflation is widely expected to be below 1%, mainly due to lower food prices. We expect CPI inflation of 30% by the end of 2026. Although interest rate cuts are currently on hold, further progress on inflation could enable the central bank to cut rates by a further 100 bps this year, bringing the policy rate down to 36%. We expect the Turkish economy to grow by 3.4% in 2026, which is a relatively strong pace while disinflation continues. Positive real interest rates and a stable, predictable exchange rate will continue to support the economic programme.

Our focus remains on identifying high-quality Turkish companies that benefit from structural growth drivers and can deliver sustainable real growth. In light of the political backdrop and the delay in interest rate cuts, we reduced our exposure to Turkey by trimming our holdings in Turkish banks. We also added Ebebek to the portfolio following its strong start to the year. The company has returned to growth, with sales volumes exceeding expectations in the first five months of the year. Its international expansion is now in full swing and contributing positively to EBITDA. Ebebek shares currently trade at an attractive valuation multiples of 2.6x EV/EBITDA and 14.9x P/E for 2026. We expect 11% real EBITDA growth and a strong rebound in earnings per share. In mid-May, we also participated in the successful Ronesans REIT ABB, which was priced at an attractive discount. Since then, the shares have risen by a further 6% in USD terms.

Our outlook on the region remains positive and we continue to invest in high-quality companies with strong growth potential and resilient balance sheets. The East Capital New Europe Fund is trading at 10.7x P/E, with an expected year on year earnings growth of 16% in 2026 and a dividend yield of 4.0%. The resolution of the Russia-Ukraine conflict could further lower risk premiums and bond yields, which would support equity markets across 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.