Portfolio Update

BLACKROCK EMERGING EUROPE PLC - Portfolio Update

PR Newswire

London, August 18

Commenting on the markets, Sam Vecht and Christopher Colunga, representing the Investment Manager noted;

Market Commentary

The MSCI Emerging Europe 10/40 Index appreciated by 1.2% in July in USD terms. The Company outperformed the index and was up by 2.6% in USD terms.

Performance among the regions’ equity markets varied significantly in July. While Czech Republic (+8%) and Hungary (+8%) joined the post-Brexit rally, Turkey (-6%) was down following a failed coup attempt.

On the evening of Friday, July 15, rogue elements within the military attempted to seize power in Turkey. The attempted coup was put down quickly as the civilian population poured into the streets to protest the military action. In the aftermath, a State of Emergency was declared as the government focused on ensuring that all state institutions were open for business as usual on the Monday morning. Both the market and the currency fell significantly on 18 July, however, the impact was relatively short-lived as both had recovered roughly half of their losses by the end of the first week of August.

Elsewhere in the region, Greece (+6%) was a strong performer for the month as its central bank loosened capital controls that had been in place for over a year. In Poland (+2%), the market reacted positively as the government’s new pension reforms were more benign than feared. Russia was a laggard during the month on the back of currency weakness and a falling oil price.

Focus on: Turkey and miners

Following the headlines from Turkey this month, our holdings in Garanti Bank, Halk Bank and Turkiye Sinai Kalkilma Bank detracted from returns for July. However we took this opportunity to add to our positions in Turkey as we felt the sell-off was excessive and did not reflect the fundamental facts on the ground. It is not that often that we get a chance to buy a market 20% cheaper than it was trading three days earlier. The political leadership was robust enough to withstand the attempt and, if anything, emerged stronger. The macroeconomic outlook has not shifted significantly, and the government is issuing a raft of reforms to support domestic growth. In this environment we believe that the Turkish banks will show increased profitability going forward, not less, and so we increased our exposure.

Benefiting the Company was our position in miners. In Poland, KGHM Polska Miedz benefited from a rally in silver prices. The environment remains supportive for KGHM and speculation over a cut in mineral extraction taxes may unlock further value in the company. In Russia, Norilsk Nickel was a top performer on the back of the strong move in nickel prices during the month. We continue to like Norilsk Nickel as we feel the nickel price may continue to benefit from regulatory actions constricting supply of the metal, especially in the Philippines. Our position in Ukrainian IT company Luxoft also contributed positively as the stock rebounded as part of the post-Brexit rally.

19 August 2016

ENDS

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