"We look for political stability"

[Louis Proyect <lnp3@xxxxxxxxx>]

The Times (London), October 14, 2000, Saturday

Eastern Europe emerging nicely

Claire Burston

The fall of the Milosevic regime in Yugoslavia is focusing attention on the
other Eastern European nations that have already established a measure of
political stability. Some stock markets in this region have performed well
over the past year.

Aberdeen Frontier Markets (0845-300 2890, www.aberdeen-asset.com), managed
by Andrew Elder, is a prime example. The fund has produced average annual
returns of 21 per cent since launch in June 1996. Over the past three years
it has returned 50.3 per cent.

Mr Elder says: "We follow a very strong stock-picking approach. We aim to
identify stocks that are undervalued, that have good management and sound
business plans. We like companies that have been a proven success in
mainstream European markets and are attempting to translate that to
emerging Europe."

Sector trends in Europe play a big part in stock picking in emerging
Europe. Mr Elder says: "We have been quick to pick up on trends in Europe
that we think will spread across to emerging Europe so we can get into
companies early, such as the outperformance of stocks in the media sector
over the past two to three years. We invest in stocks such as the publisher
Dogan Yayin, in Turkey, which has been a great success for us."

But investors must also consider the macro-economics of the region, which
is obviously far more risky than mainstream European markets. There is no
point investing in a company - however promising - in an unstable country.

"We look for political stability and accountability of the government,"
says Mr Elder. "Once a country has that, it can undergo vital structural
reforms. We like countries that are switching towards a privatised economy
rather than being state run. We look for a good privatisation programme and
an independent central bank. Then we look for financial convergence.
Countries converging with Europe in relation to interest rates and exchange
rates are attractive. We saw this a few years ago with Portugal, and Greece
is now undergoing this process."

These economic considerations have a heavy impact on companies and sectors.
In Turkey, for example, there is continued improvement in the political
stability of the country, which is creating a lot of structural reforms in
the economy. However, the Government's aim to lower interest rates is
hitting the banking sector.

Giles Neville, fund manager of the Schroder Global Emerging Markets unit
trust, says: "One of our preferred markets is Russia, but it remains
extremely high risk. It will be a bumpy ride, but there will be significant
returns there."


Louis Proyect
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