Limestone to publish monthly manager comments for May

Limestone is delighted to bring you the fifth 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.

• May happened! Markets reacted extremely nervously to any negative news and acted like yo-yo. New Europe equity markets dropped -8.6% measured by Stoxx EU Enlarged index, with Limestone New Europe SRI fund taking a -9.9% dip. Eastern Europe Real Estate equities fund declined 9.2% during the month.

• Market exhibits weakness despite strong signals that New Europe growth is on track. The OECD has just published an improved view on its members’ growth outlook and the 1Q data for CEE has confirmed a recovery trend. Overall growth still rests on industrial outlook, which for key CEE markets tracks closely German recovery.  Weaker euro and even weaker local currencies in CEE form a good base for continued export strength.

• Currently weak/volatile markets do not reflect fundamentals properly, we find the region undervalued based on our universe and current fund portfolio upside. The valuation metrics PE’11 of 6x and PBV’10 of 0.8x surely confirm that.

• Going forward the biggest fear is that the markets will remain shaky for any event risk, while failing to assess to true effect. Take Hungary for example. The ill-advised comments by Hungarian politicians sent jitters throughout the world capital markets. The truth is that economically Hungary is not even close to  Greece - it  admittedly has its own problems with public debt, but that is negligent to the problems it has with apparent economic populism and ‘bad rhetorical surprises’.