Region of Western Balkans in South Eastern Europe has enormous growth potential.
Short term potential of regional capital markets is bound to present market valuations. Regional stock markets are mainly uncorrelated with global markets and regional stock exchange indices are still very depressed. They have not improved much since start of decrease in 2007 and are lagging the most behind the world indices, some of them being at only 10% of their 2007 highs, also due to presently still low liquidity in the region.
Lately European Central Bank has largely extended the types of securities taken for collateral from European commercial banks for favorably loans and thus made it much easier for these banks to access relatively inexpensive loans. We expect the dynamics of these loans to strengthen as »debt monetization« looks the least bad available alternative for improving liquidity in European Monetary Union. We can therefore see substantial increase of money available circulating with outlook for more to come. More money circulating results in higher shares and other assets valuation. Enlarging the amount of available money in Euro zone is very positive also for region of Western Balkans, where majority of bank system is owned by banks from Euro zone. As regional countries (Slovenia, Croatia, Serbia, Bosnia and Herzegovina, Montenegro and Macedonia) and banks are in dire need for additional money, privatization of countries’ assets and companies’ sale-offs are inevitable. With increased liquidity predicted in the region, higher valuation of companies and thus regional indices is also expected.
In the mid to long term perspective these countries of former Yugoslavia have the largest growth potential in Europe. Effects of the further upcoming EU and NATO accessions such as foreign investments, liquidity expansion and further market liberalization will help to improve operations of regional companies and converge regional economies and thus increase their valuations to that of developed world. That will be last such enlargement of the European Union and the last »catch up« story in Europe’s in foreseeable future.
Very good example of such growth potential is demonstrated by Balkan Emerging Frontiers Fund, a regulated fund focused on investing exclusively in publicly traded securities on regional stock markets of Western Balkans. The Fund’s objective is to provide investors with a net return series that over multiple years exceed that of the major developed, emerging, frontier & local indices.
In last 24 months the Fund has thus made more than 52% net return for its investors. It was ranked 1st in 2011 Compounded Annual Return in category Emerging Markets – Eastern Europe & CIS in BarclayHedge database, where 86 investment funds were compared in the category. The Fund was also ranked 1st in FE’s Trustnet Offhsore database by 2011 annual performance in category Equity – Emerging Europe, where 386 investment funds were compared.
Most of the performance is the Fund’s Investment Manager alpha as indices are still flat in the region as local stock exchanges are still very inefficient while there is plenty of investment opportunities available. When the recovery starts from currently very depressed levels, returns will be much higher.
The Fund’s Investment Manager has 16 years of valuable experience in investing and managing investments in the region, almost from the start of the privatization process. With excellent contacts in the region Investment Manager is capable to access and evaluate information quickly in order to exploit investment opportunities by active management.
The Fund’s Investment Manager uses bottom-up fundamental analysis and investment picking investment approaches. With good understanding and experience in investing in the region it is able to exploit pricing inefficiencies and avoid most of the countries’ and companies’ specific risks. Primary risk mitigation tool used is diversification, with imposed position limits for countries, industries and companies.
Responsible person of the Investment manager of BEF-Fund