Over six months ended 31 July 2016, BlackRock Emerging Europe’s net asset value per share returned +17.4% and the share price +19.4% in US dollar terms and +25.4% and +27.6% respectively in sterling terms. By contrast, the MSCI Emerging Europe 10-40 Index returned +14.6% in dollar terms and +22.4% in sterling terms.
It was agreed in June 2013 that, prior to 21 June 2018, the Board would formulate and submit proposals (which may constitute a tender offer and/or other method of distribution) to provide shareholders with an opportunity to realise the value of their investment in the company at NAV less applicable costs. A further announcement regarding these proposals will be made prior to 21 June 2018.
The manager says that Russia and Poland were the main drivers of performance while Turkey was the largest detractor during the period. Positive contributions to performance came from stock selection in Russia. A position in Russian utility Inter RAO rose after reporting strong first quarter results for 2016 and announcing the sale of a non-core asset. Norilsk Nickel was a good performer on the back of the strong move in nickel prices in July. They continue to like Norilsk Nickel as we feel that the nickel price may continue to benefit from regulatory actions in the Philippines constricting supply of the metal. A position in Yandex, a Russian IT company, was a strong performer as internet advertising accelerated in line with the recovery in the Russian economy. In addition, the Company benefited, on a relative basis, from its underweight position in Russian food retailer Magnit after its results were weaker than expected.
In Poland, mining company KGHM 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’s shares.
The main detractors from performance were stock selection in Turkey and Greece. Holdings in Halk Bank and Turkiye Sinai Kalkilma Bank detracted from returns as a result of ongoing political concerns, especially after the failed coup attempt in July. However, they took this opportunity to add to positions in Turkey as they felt the sell-off was excessive and did not reflect the fundamental facts on the ground. The political leadership was robust enough to withstand the attempted coup 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 theye believe that the Turkish banks will show increased profitability going forward, not less, and so they increased exposure.
During the first quarter of 2016 developments were positive for Greek assets and the Company benefited from holdings in Alpha Bank and National Bank of Greece. Shares in the banks rallied on speculation that Greece will be able to access financing from the European Central Bank’s quantitative easing programme. However, in June 2016, post the Brexit vote, Greek financials detracted from performance.
BEEP : Russian and Polish holdings drive BlackRock Emerging Europe’s outperformance