Limestone to publish monthly manager comments for April

Limestone is delighted to bring you the fourth 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 ended the month in positive territory amid increasing fears of spreading Greek contagion. The STOXX EU Enlarged index extended YTD gains to +11.6 percent compared to New Europe SRI fund +19.5 percent YTD performance. The respective performance figures for April were 1.6 pecent for the Fund and 0.5 percent for the benchmark. For comparison, the European equity market lost  1.4 percent in April bringing YTD returns to 2.4%, as measured by the broad Stoxx 600 index.
 
•    Stocks, bonds and currencies tumble. During the latter part of the April and beginning of May huge uncertainty about the future setup of the Eurozone resulted in euro weakening and a huge sell-off on CEE fixed income markets. Month on month Polish zloty eased some 7.1 percent and Hungarian forint 4.7 percent. The yields have also jumped some 70-100bps. Given that the recovery in core New Europe countries is tracking Germany, as the 1Q growth expectations indicate, exchange rates will likely strengthen again, and CDS spreads could move again towards their lows. This may not be unrealistic as the EU and IMF stabilization package helps to restore stability.

•    Key rates continue to decline. The central banks in New Europe have not run out of policy options yet to stimulate growth. Romania’s central bank cut its main interest rate to a record low 6.25 percent from 6.5 percent,  fourth and smallest cut this year. As expected, the Polish central bank decided to keep the key policy rate unchanged at 3.50 percent. The Ceska Narodni Banka on May 6 unexpectedly cut the benchmark two-week interest rate by a quarter-point to a record- low 0.75 percent.

•    1Q economic growth figures expected to surprise positively. The Czech Republic and Hungary probably recovered from recessions in the first quarter as demand for their exports in the euro area improved. Based on consensus Romania and Bulgaria economic decline slowed to respective 3.3 and 3.0 percent annually.

•    New Europe and EMU periphery are taking divergent paths. Goldman Sachs are several other prominent research houses have published research pieces outlining differences in macro situation and expecting „CEE3 economic outperformance to extend despite the macro issues in the EMU periphery.“ We can only applaude to this rational approach.

•    EU agreement to combat crisis. In the wake of the crisis in Greece, the situation in financial markets is fragile and there was a risk of contagion which EU governments needed to address. The Council and the Member States decided on a comprehensive package of measures to preserve financial stability in Europe, including a European Financial Stabilization mechanism with a total volume of up to 500 billion euros. This sends a strong signal that the EU members stand side-by-side in the current crisis and will do anything to defend the euro.

•    Fund flows to Emerging Europe not significantly affected.  The 10 weeks of consecutive inflows were broken only during the first week of May, when EMEA saw tiny outflows of 0.02 percent of AuM.