Portfolio Manager: Marios Demetriades

Piraeus Bank (Cyprus) Ltd.

(June 2011)

How has the Fund performed recently compared to its peers?

Despite a bad start this year due to the Fund’s over-exposure in Egypt, it has performed relatively better recently than its peers due to its under-exposure in Turkey. Turkey has performed badly over the last two months as worries about its overheating economy have intensified.


One of the Fund’s key markets is Greece. To what extent has the Fund been affected by the problems Greece has faced over the last year or so with sovereign debt?

The Fund’s exposure in Greece and Cyprus is around 35%, which is quite significant. Despite the good performance of these two markets during the first quarter of the year, in the second quarter they recorded significant losses. This has negatively affected the performance of the Fund.


What is your view of the future of the Greek market, both in the short and medium terms?

We expect the Greek market to continue to be volatile in the short term as the uncertainty regarding its macro situation continues at least this year. Over the medium term we expect the market to stabilize at higher levels as the situation becomes clearer and the aid packages start to produce some results.


Despite Cyprus, which is also one of the Fund’s investment markets, not having the same debt problems as Greece, it is often linked together with Greece by some investors. To what extent is the Cypriot market influenced by events in the region and in particular in Greece?

Unfortunately, the Cypriot market is linked to the Greek market due its strong economic ties with Greece, especially in the banking sector. Having said that, the economy is in much better shape and growth has been positive during the last year and a half after a negative 2009.


Another important Fund market is Egypt, which has also faced some serious problems this year. What effect has all the unrest in the country and the closure, for a time, of the Cairo stock exchange, had on the Fund?

Democracy leads to increased and more sustainable economic growth. This is also forecast for the Egyptian economy which is expected to benefit greatly from the move towards democracy at least in the medium to long term horizon. Unfortunately, the unrest before and around the revolution combined with the closing of the stock exchange for seven weeks caused the market to fall 30% this year. This naturally led to Fund losses as levels of exposure to Egypt in our portfolio were more than 30%.


What is your view of the future for the Egyptian markets, again both in the short and medium terms?

The Egyptian market will definitely develop significantly over the medium to long term horizon as the process towards democracy coupled with the attractive demographics of the country create a lot of prospects for investors. In the short term we expect the market to partly recover its losses from the start of the year. However, no significant recovery is expected before the crucial presidential elections in September which will be the first real test of democracy.


Turkey is the third key market for the Fund. Some investors have pointed out its strategic investment importance in the region and its strong economic growth in the last decade.  What do you see as the most attractive characteristics for investors in the Turkish market both as a market in itself and in comparison with others in the region?

Turkey undoubtedly came out of the economic crisis relatively unscathed. Its economy grew by more than 7% in 2010 and in 2011 growth of around 5% is expected. This is due to both the political stability it has enjoyed in recent years and structural changes introduced in the country after the last crisis it went through. The most attractive characteristics of the Turkish market, compared to other countries in the region, are the prospects for the economy, the depth of the market both in terms of the number of companies and liquidity and the political stability it enjoys.


In light of the events in the region this year and prospects in Turkey do you plan to change, and if so to what extent, the portfolio’s country exposures?

We believe the market is likely to be affected by factors like the Euro debt crisis and its own internal economic challenges (mostly a high current account deficit). In terms of allocation we have decreased our exposure in Turkey as the market hit new highs this year. We believe that the market will outperform again only as a result of a new catalyst. A possible catalyst could be an upgrade of the country by one of the major ratings agencies to investment grade or clear signs that inflation and the current account deficit are under control.



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