NESTOR Eastern Europe - Quarterly Report 2/2020

07/09/2020

The second quarter of 2020 witnessed one of the greatest rebounds seen in the equity markets in many decades. The unprecedented fiscal and monetary measures taken by the world governments and central banks supported considerably world economies shaken by the COVID-19 pandemic. Due to the brutal slowdown in economic activity, all major economies are expected to face a double-digit decline in GDP. Even the collapse of the economic activity witnessed in the last financial crisis of 2008 was considerably smaller. The ultra-loose monetary policies adopted by world central banks which were complemented by expansionary fiscal policies showed great success in calming down investors around the globe and boosting confidence in the prospects of economic growth. Consequently, equity markets made a decent rally from April to the end of June. Although this rally was more than welcome, we must admit that at this point it is impossible to predict whether this increase in prices will be justified by corporate earnings in the near future or not.

By the end of the quarter, normal life has started to return very slowly in most countries, so both production and consumption began to normalise. The process of reopening the economies is slow and very much vulnerable, as unfortunately the number of Covid-19 positive cases has not yet decreased significantly.

Beside the aforementioned monetary and fiscal packages, another vital catalyst which supported the Central European Markets -especially Russia- was the end of the short-term turbulence in the oil market. In March, for the first time in history, we observed a negative price for the WTI. This means that oil producers had to pay for selling their oil production. At an emergency meeting in April, the OPEC+ members decided to cut output by 10 million barrels per day, and as a result, the price of oil has doubled from 20 USD to 40 USD during the last quarter.

NESTOR Osteuropa Fonds rose by 22,93% in the second quarter. The good performance could be mainly attributed to the Russian market which increased by 24% in EUR term. The Polish and the Czech markets had nearly the same good result, while the Hungarian market was lagging behind with only a 13,5% positive performance. Looking deeply into individual stocks, we would figure out that the best performing companies were Tinkoff Bank, Yandex and Magnit in Russia, CCC, PGE and JSW in Poland, CEZ in the Czech Republic and OTP Bank in Hungary. Oil companies likewise experienced a great rebound, and one of our favourite investments, Sberbank, increased considerably in value during this period.

In the second quarter, fewer trades were executed, nevertheless, we were delighted to see our core investments increasing significantly in value. During the quarter we sold the whole exposure of Tinkoff Bank and Yandex, went neutral in OTP, and opened new long positions in Gazprom Neft and Globaltrans.

Investors face high risk – high return potential investing into Central European Equities via NESTOR Osteuropa Fonds. The Central European region is supported by extreme high dividend yield mostly provided by Russian companies, a significant capital inflow, and an above-average GDP growth.

Peter Elek, Dialog Investment Management Ltd.