Limestone to publish monthly manager comments for March 2010

Limestone is delighted to bring you the third issue of 2010 monthly fund newsletters. The following bullet points contain comments on the key aspects of the New Europe investment case. Please also see the actual reports following the links to specific funds.

•    Limestone funds recorded a strong first quarter of 2010. The STOXX EU Enlarged index posted YTD gains of +11.1 percent compared to New Europe SRI fund +17.6 percent YTD performance. The results were bolstered by a notably strong March when index received another 10% boost. For comparison, the European equity market gained 4 percent in the first quarter of 2010, as measured by the broad Stoxx 600 index.
 
•    Earnings growth supports the market rally. Several of our portfolio holdings managed to surprise the rest of the market by posting better than expected results. The stock prices followed suite with YTD gains standing for Boryszew at +93 percent, SIF 1 Banat Crisana at 48 percent and Automotive Components Europe +43 percent. As our fund manager Alvar Roosimaa comments, we are still able to find cheap companies to add to the pipeline of replacements to the ones that have exhausted their potential for the time being.

•    Valuations are not expensive at this point. In the beginning of March 2010 we estimate our investment universe’s upper 1/3, or 100 top names, to have an average estimated P/E’10 ratio of below 9.6x and P/B of 0.6. Hence, there is plenty of very attractively valued companies to choose from to reshape the portfolio if market conditions so require.

•    Key rates and risk levels also decline. Hungary and Romania cut the two highest benchmark interest rates in the European Union to record lows to steer their economies toward growth as concern about Greek contagion ebbed. Hungary lowered the deposit rate to 5.5 percent from 5.75 percent, the ninth consecutive cut. The Romanian Central Bank cut its key rate for a third time this year to 6.5 percent from 7 percent. Good shape of public finances and increased differentiation of CEE from Greece has created strong demand for CEE currencies and debt. While Greek CDS climbed to a range of 300-400bp in 1Q10, CDS on CEE sovereign debt reached the lowest level since October 2008 (Polish CDS went below 100bp, Hungarian and Romanian below 200bp).

•    Fund flows return to Emerging Europe.  Latest indications point to increased fund inflows to EMEA region, while Asia appears to be taking a break. So far in 2010, as a % of AUM, EMEA leads (with 5.4% of AUM inflow) followed by GEMs (1.5% of AUM inflow), Asia (inflow of 0.9% of AUM) and Latam (0.2% of AUM). Investors may have taken some money out of Russia and Turkey in the mid-quarter correction. More money is being allocated to Hungary and Poland, with Romania also standing out, as it comes up from very thin levels.