1 Why invest in Eastern Europe? Sven Kunsing Head of Eastern European Investment Management.
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Transcript of 1 Why invest in Eastern Europe? Sven Kunsing Head of Eastern European Investment Management.
2
After all these years…Do we still find reasons to invest in Eastern Europe?
SEB Growth Fund performance since 1999 (in EUR)
Emerging Markets, MSCI, Eastern Europe Index, Close, USD [perf %]
Source: EcoWin, Bloomberg
Dec
99 00
Aug Dec
01
Apr Aug Dec
02
Apr Aug Dec
03
Apr Aug Dec
04
Apr Aug Dec
05
Apr Aug Dec
06
Apr Aug Dec
07
Apr Aug
Per
cent
-50
0
50
100
150
200
250
300
SEB Growth Fund (Bloomberg: UHIKASV ET) is an Estonian domiciled Eastern European equity fund managed by SEB EE Equity Team
3
Important starting point
New Europe vs Russia (CIS)
Convergence
European Union policies
Service oriented sectors
Subcontracting
Small economies
Energy
Other resources
Heavy industries
Emerging consumers
Puzzling politics
4
CompetitivenessHourly labour costs in industry and services
Minimum, maximum
and median levels in EUR
Source: EuroStat
5
CompetitivenessAverage weekly working hours
37.2
40.2
30
32
34
36
38
40
42
Old EU average New EU average
1Q07
+8.1%
Source: EuroStat
6
CompetitivenessTax competition (tax revenues as % of GDP)
41,8
34,2
25
30
35
40
45
50
55
LT
LV
SK IE EE
CE
E8
MT
CY
PL
CZ
ES
UK
PT
EL
HU
NL SI
EU
25
DE
EU
15
LU IT AT FI
FR
BE
DK
SE
Source: EuroStat
7
Result: Strong GDP growth
11.4%11.9%
7.5%
3.9%
6.1%
8.3%
5.2%
7.7%
6.1% 6.1%
4.8%
5.7%
3.0%
8.0%
9.7%
8.0%
5.6%
2.3%
6.5%
8.7%
4.3%
6.7%6.1%
4.9% 4.8%
5.9%
2.9%
7.0%
8.2%
6.5%
5.0%
2.8%
5.5%
7.2%
4.0%
6.3% 6.2% 5.9%
4.5%5.3%
2.7%
6.5%
7.8%
6.0%
4.7%
3.0%
5.0%
6.8%6.4%
0%
2%
4%
6%
8%
10%
12%
14%
Estonia
Latv
ia
Lithu
ania
Czech
Hunga
ry
Poland
Slovak
ia
Sloven
ia
Roman
ia
Bulgar
ia
Turke
y
Croat
ia
Serbia
EU 27
2006 2007E 2008E 2009E
Source: EcoWin, European Commission Spring 2007 Forecast, SEB Nordic Outlook August 2007
8
Convergence5 year gov’t spreads to EUR
Czech Hungary Poland
Source: Reuters EcoWin
01 02 03 04 05 06 07
-1
0
1
2
3
4
5
6
7
8
9
Poland
Czech
Hungary
9
ConvergenceFX rates in CEE3
Spot Rates, Close
Estonia, EUR/EEK [perf %]
Lithuania, EUR/LTL [perf %]
Latvia, EUR/LVL [perf %]
Hungary, EUR/HUF [perf %]
Poland, EUR/PLN [perf %]
Czech Republic, EUR/CZK [perf %]
Source: Reuters EcoWin
96 97 98 99 00 01 02 03 04 05 06 07
Perc
ent
-40
-30
-20
-10
0
10
20
30
40
50
60
70
1010
Bumpy road to Monetary UnionInflation LT
interest rate
Fiscal balance
% of GDP 06
Public debt
% of GDP 06
Currency
Currency regime Expected EMU entry
(optimistic scenario)
Maastricht reference
3,0* 6,4* -3,0 60,0 Smooth participation in ERM II for 2 years
Estonia 4,7 n/a, but ok +3,8 4,1 Kroon ERM II 2011
Latvia 7,0 4,5 +0,4 10,0 Lat ERM II 2012
Lithuania 4,2 4,2 -0,3 18,2 Litas ERM II 2011
Poland 1,6 5,3 -3,9 47,8 Zloty Float 2012
Hungary 6,2 7,1 -9,2 66,0 Forint Target zone(EUR) 2013
Czech 1,9 3,9 -2,9 30,4 Koruna Managed float (EUR) 2012
Slovenia 2,6 4,0 -1,4 27,8 Tolar ERM II Already in!
Slovakia 3,5 4,5 -3,4 30,7 Koruna ERM II 2009
Bulgaria 6,2 4,3 +3,3 22,8 Lev Currency board (EUR) 2016
Croatia 2,6 4,2 -2,3 42,1 Kuna Managed float (EUR) 2018
Romania 5,2 7,5 -1,9 12,4 Leu Managed float (EUR) 2017
Serbia 8,3 n/a 1,6 34,9 Dinar Free-float 2020?
Turkey 10,1 17,5 0,4 60,7 Lira Fee-float 2025?
*Referring to the period April 06 to March 07 Source: ECB Convergence report May 07
11
Economic growthBack to the future – you have already seen this 25 years ago
GDP per capita (in SEK)
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
TIME: Estonia 1993 - 2027E
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
TIME: Nordics 1950 - 2005A
Estonia GDP/capita, SEK
Sweden GDP/capita, SEK
Finland GDP/capita, SEK
13
Emerging middle class
Strong natural resource base
Fast GDP growth
Imminent WTO accession
Ongoing economic reforms
Top 5 reasons
14
Russia: while huge, it’s still so small…
2004 GDP, current prices bnUSD
583 578
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
2.000
2004Russia Netherlands
2004 GDP/capita, PPP USD
10200
19000
0
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
18.000
20.000
2004Russia Portugal
2004 GDP, PPP bnUSD
1449
1620
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
2.000
2004Russia Italy
Source: IMF WEO Database, April 2005
15
Russia: … but catching up
GDP per capita (in PPP $ terms)
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Russia (LHS)
New EU members (LHS)
Russia as % of new EUmembers (RHS)
Source: IMF WEO Database, April 2005
16
Strong GDP growth
10.0%
5.1%4.7%
7.2%6.4% 6.7%
7.5%7.0%
6.5%
4.4%
3.2%
4.1% 4.2%
5.4%6.1%
5.5%4.8%
4.4% 4.2%4.0% 3.7%
0.9% 0.8%
1.7% 1.5%
2.9% 2.6% 2.4% 2.1%
7.3%
0%
2%
4%
6%
8%
10%
12%
2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E
Russia CEE3, avg EurozoneSource: EcoWin, SEB
17
Russian growthNot so production-driven…
Retail sales / industrial production growth
Retail sales growth Industrial production growth [c.o.p 12 months]
Source: Reuters EcoWin
Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May
03 04 05 06 07
Per
cent
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
18
Russia: Macroeconomic developments
GDP growth +7.5%
Inflation 8.7% (second year in single digits)
Investment growth +17%
Real disposable income +14%
Trade surplus 115bn USD (9.4% of GDP)
Federal budget balance 4% of GDP
Early prepayment of Paris Club debt (now ext public debt/GDP ca 4%,
one of lowest among all EM)
Macroeconomic success continues in 2007
19
Russia: strength all over
Low public debt
Strong reserves
Strong current account
Strong fiscal balance
20
And after all these years…We still keep on beating the index
SEB Growth Fund performance since 1999 (in EUR)
SEB Growth Fund [perf %] Emerging Markets, MSCI, Eastern Europe Index, Close, USD [perf %]
Source: EcoWin, Bloomberg
Dec
99 00
Aug Dec
01
Apr Aug Dec
02
Apr Aug Dec
03
Apr Aug Dec
04
Apr Aug Dec
05
Apr Aug Dec
06
Apr Aug Dec
07
Apr Aug
Per
cent
-100
0
100
200
300
400
500
600
SEB Growth Fund (Bloomberg: UHIKASV ET) is an Estonian domiciled Eastern European equity fund managed by SEB EE Equity Team
21
Thank you!
Sven Kunsing
Head of Eastern European Investment Management
+372 6656 645