THE EASTERN EUROPEAN TRUST PLC
All information is at 31 OCTOBER
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** -1.2% 5.6% 4.2% 19.7% 74.6%
Net asset value (undiluted)** -0.1% 4.0% 6.0% 20.3% 72.7% MSCI
EM Europe 10/40(TR) 0.3% 4.6% 4.8% 17.4% 64.7%
US Dollars:
Net asset value (undiluted)** -0.4% 7.0% 5.8% 17.5% 87.8% MSCI
EM Europe 10/40(TR) 0.1% 7.5% 4.6% 14.8% 79.1%
Sources: BlackRock and Standard & Poor's Micropal
* BlackRock took over the investment management of the Company
with effect from 1 May 2009. ** Net
asset value and share price performance includes the subscription
share reinvestment, assuming the subscription share entitlement was
sold and the proceeds reinvested on the first day of trading.
At month end
Net asset value - capital only: 277.56p
Net asset value*** - cum income: 282.90p
Net asset value - cum income (diluted for
subscription shares): 281.25p
Share price: 253.50p
Subscription share price: 6.00p
Total assets^: £124.9m
Discount (share price to cum income NAV): 10.4%
Gross market exposure^^^: 109.7%
Net yield: n/a
Ordinary shares in issue^^: 42,638,291
2012 Subscription shares: 8,537,982
***Includes year to date net revenue equal to 5.34p 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 NetAssets(%)* Country Analysis NetAssets(%)*
Energy 37.3 Russia 62.4
Financials 30.5 Turkey 17.2
Telecommunications 9.1 Hungary 9.7
Materials 8.4 Poland 6.2
Consumer Staples 5.8 Czech Republic 5.4
Health Care 4.6 Kazakhstan 2.4
Industrials 3.3 Turkmenistan 1.5
Other 3.0 Ukraine 1.3
Information Technology 2.9 Austria 1.2
Utilities 1.8
Consumer Discretionary 0.6
---------- --------
Total 107.3 Total 107.3
---------- --------
Short Positions -2.4 Short Positions -2.4
========== ========
*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 9.2
Gazprom Russia 9.0
Turkiye Garanti Bankasi Turkey 5.6
Lukoil Russia 5.3
OTP Hungary 4.4
Surgutneftegaz Russia 3.3
Komercni Czech Republic 3.0
Mail Ru Russia 2.7
Gedeon Richter Hungary 2.6
Turkcell Iletism Hizmet Turkey 2.6
Commenting on the markets, Sam
Vecht, representing the investment Manager noted;
Markets
In October global markets were relatively muted as investors
attempted to reconcile the support provided by the Federal
Reserve's QE3 programme and the European Central Bank's open market
transactions with a disappointing earnings season. The US
Presidential election campaign entered its final phase which also
contributed to a lack of direction in markets.
Turkey was the strongest
performer over the month as better than expected current account
deficit figures and the increasing probability of a sovereign debt
upgrade helped improved sentiment. A strong set of results from the
Turkish banking sector also buoyed the market in October.
Russian equities lost ground over the month despite Rosneft's
announcement regarding the acquisition of TNK-BP, which sent the
stock soaring nearly 20%. However, low volumes, reflecting
international investors' reluctance to act ahead of the US
Presidential elections, weighed on the market.
The weakest market in October was Poland. In an environment of slowing economic
growth, the poor results of telecom TPSA contributed to the weak
performance of the Polish market.
Performance & Activity
Over the month of October, The Eastern European Trust returned
-0.4%, underperforming the MSCI Emerging Europe 10/40 index by 0.5%
(in US Dollar terms).
Hungarian financial, OTP, was the strongest individual
contributor to performance over the month. Sentiment surrounding
the stock has been improved by the abatement of systemic risk in
the European financial system.
Also contributing to performance was the underweight position in
Polish telecom, TPSA. The company announced poor results and a
slashing of the dividend which precipitated a 25% fall in the share
price.
The largest detractor from performance was Turkish financial,
Akbank, a stock which we do not hold, which performed well in line
with the rest of the sector.
The team initiated a position in Russian health care provider,
MD Medical Group, which operates private obstetrics facilities.
The Trust also opened a new position in TKN-BP Holding after a
deal was struck between Rosneft, AAR and BP, based on which Rosneft
would acquire 50% in TNK-BP International for $28 billion in cash and the remaining 50% from BP
for $17.1 billion.
The Trust reduced the holding in Russian telecom, MTS, in
expectation that the increased supply of issuance prompted by the
forthcoming IPO of Megafon, the second largest mobile operator in
Russia, would weigh on the
sector.
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 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.
16 November 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.