Limestone to publish monthly manager comments for June

Limestone is delighted to bring you the sixth 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.

•    Equity markets in Eastern Europe continued to be held back by the sentiment swings, and lack of strong foreign capital inflows. New Europe equity markets dropped -6.4 percent measured by Stoxx EU Enlarged index, with Limestone New Europe SRI fund taking a -7.1 percent dip. Eastern Europe Real Estate equities fund declined 5.8 percent during the month. On a year to date basis New Europe SRI fund stands flat with 4.5 percent active return.

•    Market sentiment is the one to blame again! Sounds trivial, but the recent swings seen in Central Eastern European (CEE) markets are driven by the worries about sovereign risks, and then about growth prospects following the introduction of austerity measures in Europe. As the markets remain nervous it will take some time to digest the positive fundamentals in CEE and act accordingly. We strongly believe that recent reaction has been stronger than any fundamentals would warrant, as CEE markets are doing well on both sovereign risk and fundamental growth measures.

•    Fundamental growth is on track. After OECD published improved view on its members’ growth outlook, we covered in our last monthly, the International Monetary Fund raised its forecast for global growth this year to 4.6 percent, the fastest pace since 2007. While other emerging markets have already tightened monetary policy ’appropriately’, CEE is yet to step on this path. Take example, Polish Central Bank has kept reference rate at a record low of 3.5 percent for the past 12 months, helping Poland, the largest of the European Union’s eastern members, avoid recession during the global financial crisis. Rate increases in Poland are more likely with the economy now forecasted to grow as much as 4 percent in 2011.

•    Currently weak/volatile markets do not reflect fundamentals properly, we find the region undervalued based on our universe and current fund portfolio upside. We believe the markets should start paying more attention to the good corporate results in the central and eastern European equity markets again, as the sovereign debt crisis eases. Due to price declines in last quarter the valuations are now at very attractive levels.