Jyske Invest Eastern European Equities

Market Comments, Q1 2012

Excellent start to the year - investors regained their risk appetite

Review                   

The fund generated a return of 14.72% for the first quarter of the year against a benchmark return of 16.79%. We underperformed the market, due primarily to exposure against a real-estate company and because the fund cannot invest in local Russian equities which are included in the benchmark return. The fund invests in Russian equities traded outside Denmark.

Investors’ risk appetite returned, which contributed to the excellent start to the year. A number of economic indicators showed improvement of the US economy. Moreover, the European Central Bank once again made cheap financing available to the struggling European banks. But there were not only positive stories in the first quarter. The tense relationship between the western world and Iran has intensified, causing the oil price to increase. The oil price increased by more than 10% in the first quarter. Especially Russia is benefiting from high oil prices since Russia is the world’s largest oil-producing country.

Probably the most important event in the region was the Russian presidential election. The election was smooth and the result was as expected. Vladimir Vladimirovich Putin won the first round of the election with 64% of the votes, and he will be inaugurated as president on 7 May. The resistance against the established system and especially corruption, which was seen in connection with the parliamentary election (the Duma), flagged off in the period up to the presidential election and also demonstrations were considerably reduced. The resistance has, however, resulted in higher political focus on the corruption problems. Whether this is signal policy or whether it will lead to actual changes is still uncertain.

Outlook

Investors have abandoned a great deal of their concerns over the recent months. This does not, however, change the fact that a number of risks may easily enter the stage again. The EU and the IMF are tackling the debt crisis in Europe, but it has not been solved. The US has pursued expansionary fiscal and monetary policy to boost US economic growth – it is on its way, but there are many obstacles along the way. Germany is still the growth engine in Europe, but as a major industrial and export nation the country is dependent on economic growth worldwide and not least in China. China has delivered high growth for many years, but recently the central government has been forced to ensure the balance between growth, inflation and other economic imbalances through a number of economic initiatives. The balancing act appears to have been successful for China but it cannot be taken for granted.

We are moderately optimistic despite the many risks. Especially because most risks are well-known and many have been addressed politically. Accordingly, investors can take into account the potential pitfalls when they assess the potential of the equity markets. But given the many major challenges at play, the outcome of all challenges will not necessarily be positive – and we expect this to result in price bumps along the way. Notably a change in investors’ risk tolerance and an escalation of the situation in Iran may have a significant effect on the Central and Eastern European equity market.

Please note

Past performance is not a reliable indicator of future results. The value of and return on your investment may fall, and you may not get back the full amount invested. Investment in small and emerging markets may prove more volatile than investment in other markets. An initial charge is usually made when you purchase and sell units. The fund may invest in instruments denominated in various currencies. You should be aware that changes in exchange rates may have an adverse effect on your investment. This may also be the case if EUR is not your base currency.

Information in this text should not be regarded as investment advice, and investors should consult their own investment and tax advisers before buying or selling.