THE EASTERN EUROPEAN TRUST PLC
All information is at 30 NOVEMBER
2012 and unaudited.
Performance at month end with net income reinvested
One Three One Three *Since
Month Months Year Years 30.04.09
Sterling:
Share price** -3.4% 2.0% -1.1% 11.9% 64.4%
Net asset value (undiluted) 0.1% 2.4% 2.4% 13.2% 68.9%
Net asset value (diluted) 0.1% 2.0% 1.8% 12.6% 67.9%
MSCI EM Europe 10/40(TR) 1.3% 4.7% 6.2% 15.1% 66.8%
US Dollars:
Net asset value (undiluted) -0.4% 3.3% 4.4% 10.6% 82.7%
Net asset value (diluted) -0.5% 2.9% 3.8% 9.9% 81.6%
MSCI EM Europe 10/40(TR) 0.7% 5.7% 8.2% 12.4% 80.4%
Sources: BlackRock and Standard & Poor's Micropal
* BlackRock took over the investment management of the Company
with effect from 1 May 2009.
At month end
Net asset value - capital only: 277.86p
Net asset value*** - cum income: 283.15p
Net asset value - cum income (diluted for
subscription shares): 281.45p
Share price: 245.00p
2012 Subscription share price: 3.00p
Total assets^: £124.7m
Discount (share price to cum income NAV): 13.5%
Gross market exposure^^^: 114.00%
Net yield: n/a
Ordinary shares in issue^^: 42,441,591
2012 Subscription shares: 8,537,982
***Includes year to date net revenue equal to 5.29p per share.
^Total assets include current year revenue.
^^Excluding 6,000,000 shares held in treasury.
^^^ Long positions plus short positions as a percentage of net asset value.
Benchmark
Sector Analysis Net Assets(%)* Country Analysis Net Assets(%)*
Energy 34.7 Russia 65.5
Financials 32.6 Turkey 18.1
Materials 9.6 Hungary 7.4
Telecommunications 9.5 Czech Republic 6.2
Consumer Staples 6.1 Poland 5.6
Health Care 4.1 Kazakhstan 2.3
Information Technology 3.9 Turkmenistan 1.5
Industrials 3.6 Austria 1.4
Other 3.1 Ukraine 1.2
Utilities 1.6
Consumer Discretionary 0.4
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Total 109.2 Total 109.2
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Short Positions -4.8 Short Positions -4.8
======== ========
*reflects gross market exposure from contracts for difference
(CFDs)
Ten Largest Equity Investments(in % order of Total Market
value)
Total Market
Company Country of Risk Value %
Sberbank Russia 9.9
Gazprom Russia 8.7
Turkiye Garanti Bankasi Turkey 6.7
Lukoil Russia 5.5
Komercni Czech Republic 3.9
Mail Ru Russia 3.7
Surgutneftegaz Russia 3.3
Mobile Telesystems Russia 3.0
OTP Hungary 2.9
Turkcell Iletism Hizmet Turkey 2.6
Commenting on the markets, Sam
Vecht, representing the investment Manager noted;
Markets
In November the MSCI Emerging Europe 10/40 index returned 0.7%
in US$ terms. Politics in the US and China dominated the headlines. A smooth
leadership transition in China and
economic results that showed some signs of stabilization were taken
as positive. In the US, post the Presidential election, the debate
surrounding the fiscal cliff has weighed on equity markets.
Russia finished the month
broadly flat, which obscures a month in which the equity market was
volatile in response to speculation surrounding a number of
individual stocks including how the rise of state energy giant
Rosneft may impact the prospects of private gas producer
Novatek.
Poland was the strongest
performer over the month. The Polish market has risen over 20%
year-to-date (in USD terms) despite a deteriorating outlook for the
economy. Investors have overlooked the negative earnings
environment and forecasts of return on equity to be less than 10%
in 2013, the lowest across Emerging Europe and the broader Emerging
Market universe.
Hungary and the Czech Republic underperformed in November. In
Hungary, Prime Minister,
Viktor Orban announced further
austerity measures. The government announced that a temporary
banking levy would become permanent and also raised taxes on energy
utilities.
The largest Czech constituent of the benchmark, utility Cez,
released poor results for the third quarter that missed analyst
expectations by 12% and weighed heavily on the market.
Performance & Activity
In November the Eastern European Trust returned -0.4% in US$
terms, underperforming the benchmark by 1.1%.
The largest detractor from performance over the month was the
underweight position in Poland.
Despite the problems besetting the Polish economy, the stock market
has performed well as many investors searching for perceived
defensive stocks have crowded in the large cap constituents of the
WIG despite a declining earnings outlook. The Trust remains
underweight Polish stocks.
In November stock selection in Turkey partially offset underperformance. As
expected, ratings agency, Fitch upgraded Turkish sovereign debt to
investment grade which helped sentiment. Gold producer, Koza was a
notable outperformer.
We initiated a new position in Russian aluminum producer, Rusal.
A long-running dispute between Rusal and Interros, both major
shareholders in mining company, Norilsk Nickel, could be nearing an
end. The resolution of the dispute has the potential to raise the
dividend payout ratio of Norilsk Nickel, which would strengthen the
balance sheet of Rusal.
The team also bought a stake in Austrian bank Raiffeisen. Recent
developments in the Eurozone to stabilize the banking sector has
led to a normalization of financial risk and the bank, which has
extensive operations throughout Eastern
Europe, will be a beneficiary of improving sentiment. This
was funded by the reduction in Hungarian Bank, OTP, a company which
is also exposed to improving financial conditions across
Europe but is dampened by the new
permanency of the Hungarian banking tax.
The team reduced the holding in Russian energy company, Lukoil.
The stock has performed well, in relative terms, as investors
recognized the recovery in production at existing facilities due to
improved drilling techniques.
Outlook
Russian and Eastern European markets have significant long-term
structural advantages. They benefit from flexible and dynamic
economies with undervalued currencies and educated and skilled
workforces, allowing the countries of the region to remain
competitive in a globalized market. That said, the region has not
been immune from sentiment stemming from the problems which have
beset the Eurozone. Recent action from the ECB has reduced systemic
financial risk and that has been positive for all risk assets.
In Russia, the announcement
that state-owned companies will return a target 25% of profits to
shareholders through dividends is positive. Private companies have
also followed suit, bringing dividend yields in Russia up to global emerging market averages
of c.4% for the first time. In addition, recently announced
buybacks from companies across Russia & CIS have totalled $10bn, demonstrating that companies see value in
their own capital.
Elsewhere, macroeconomic conditions in Turkey have improved and Hungary inches ever closer to a deal with the
IMF for a stand-by agreement which will underpin the country's
fiscal position. However, the key driver of markets over recent
months is the fact that Emerging European stocks were exceptionally
cheap, universally disliked and widely misunderstood. As such,
minor changes in sentiment were able to have a meaningful impact on
prices.
Although we still see upside for the region, we remain mindful
of the risks which could potentially emanate from three places; US,
Europe or China.
The fortunes of global markets are still tied to varying degrees
to the fate of the US recovery which, although bumpy, is underway
as reflected in a housing market which is slowly returning to
health. A fragile recovery, by definition, could be blown off
course and that is a risk for all markets, not just those of
Emerging Europe.
A slowdown in China will affect
the demand for commodities, the prices of which impact sentiment
surrounding Russia, although this
will be positive for Turkey and
central Europe, commodity
importers.
While recent measures to stabilise the Eurozone have been
positive, any deterioration in the crisis will have implications
for emerging Europe despite their
clear contrast to the economies of peripheral Europe. It is important to remember that the
economies of emerging European markets typically have lower
government budget deficits and lower debt burdens.
Despite the attendant risks, valuations are still attractive and
much of these risks remain reflected (and more) in the price. The
long-term outlook for Emerging Europe is bright.
18 December 2012
ENDS
Latest information is available by typing www.estplc.co.uk on
the internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800"
on Topic 3 (ICV terminal). Neither the contents of the Manager's
website nor the contents of any website accessible from hyperlinks
on the Manager's website (or any other website) is incorporated
into, or forms part of, this announcement.