Financial Analysis of Central Europe

Analysis
Eastern European markets have not been affected by the Argentine crisis. However, they have been impacted by the global economic slowdown, resulting in lower growth than projected at the beginning of 2001.
Central banks have opted to try to revive the economy through aggressive interest rate cuts. Local fixed income has appreciated sharply (for example, the Merrill Lynch index of Polish government debt gained 10% in the last quarter). Schroders' emerging market debt fund has overweighted these markets and has therefore benefited from the rally.
In Russia, the weakness in oil prices and the overweighting of Russian stocks in institutional portfolios led us to sell all our Russian holdings. The remaining Turkish external debt was also sold at a profit. The proceeds from these sales were used to invest in Romania and Ukraine.
Perspectives.
The European Commission's annual report confirmed that the enlargement process is progressing rapidly, which will undoubtedly continue to provide a tremendous moral and financial boost to the development of Central European stock markets. There is no doubt that as long as capital flows continue into the region, bonds will continue to appreciate, offering investors an increasingly favorable risk-return ratio. If we add to this the strong performance of the export sectors in both Poland and the Czech Republic, we will see significant appreciation of local currencies, all despite the respective central banks' anti-currency policies.
One potentially controversial factor was the introduction of the euro, which could have altered investment practices in these countries. However, the core of the securities industry has remained largely unchanged. What is true, though, is that the importance of diversifying investments across different markets and currencies has diminished. In fact, fund managers will now have to explore new financial alternatives to achieve higher returns on their investments. In this regard, Schroders is strengthening its research department specializing in emerging markets, with a particular focus on Central Europe.