NESTOR Eastern Europe - Quarterly Report 2/2022

Unfortunately, I cannot provide too much good news about Nestor Eastern Europe fund at the moment.

Unfortunately, I cannot provide too much good news about Nestor Eastern Europe fund at the moment. The war still goes on, more and more sanctions were introduced against Russia by the West, but most important fact for the owners of this Fund is that both Euroclear and Clearstream as custodian service providers still deny making any settlement in Russian Rubel, so a significant part of the portfolio cannot be sold at the moment, which is a big liquidity risk for the Fund. By this reason, the Board of Managing Directors of LRI Invest S.A. has resolved pursuant to article 8 of the management regulations of NESTOR-FONDS (the “Fund”) to suspend the calculation of the net asset value of the Sub-Fund NESTOR Osteuropa Fonds as of 1 March 2022 until further notice.

During the second quarter of 2022 many Russian GDR’s were delisted from the London Stock Exchange, and for these equities the Fund received Russian Rubel denominated equities on a special account. It is more just a technical issue, but investors should be informed about this.

Although this quarter was interesting on the international financial markets, not too much can be said about the regional markets. While developed markets suffered the worst performance in the last 50 years, as investors faced both the rising inflation and a very high risk of an upcoming economic recession. Especially the European economy’s outlook might meet a deeper and longer recession, as the dependence of the Russian fossil energy resources (especially the gas) is extremely high, and since the war began on February the 24th Europe wasn’t able to find a good solution to replace the Russian energy. This means that upcoming winter (and heating) season will be hard for Europe, that’s why the euro met parity against the US dollar.

Some words about the Central European markets. Probably the most important moment in the region was introducing extra taxes against listed companies by the Hungarian government. Three of the four most liquid companies – MOL, OTP and Magyar Telekom – were affected by this, overall, the bill they have to pay to government equals to 400 billion HUF (roughly 1 billion EUR). This very much unfriendly step by the government lead to a significant selloff. Something similar happened in Poland, where the government want to force commercial banks to provide a much higher deposit rate for consumers. Both the Hungarian and the Polish market is one of the worst performing markets year to date.    

At the moment no one knows when and how the war will end, how and when Russian assets might be tradeable again. In this situation nor the issuer, nor the portfolio manager can give any promise regarding the future of Nestor Eastern Europe fund.

Peter Elek, Dialog Investment Management Ltd.