Fund portrait of Raiffeisen-Zentraleuropa-ESG-Aktien

The fund Raiffeisen-Zentraleuropa-ESG-Aktien focuses on the economically successful and politically stable countries of Central and Eastern Europe. Investments are primarily made in equities of companies that are headquartered or have their main activities in Poland, Austria, Hungary, the Czech Republic, Romania, Slovakia, Slovenia, Croatia, Lithuania, Latvia, and Estonia. Companies outside these countries may also be considered if they conduct a significant proportion of their business in the region.

Growth region scores with favourable valuations

Despite the war in Ukraine and upheavals caused by the coronavirus pandemic, the Central and Eastern European region remains on a solid positive development path, with economic growth around twice as high as in the "old" EU countries. The convergence trend remains fully intact, such as the gradual convergence of incomes to Western European levels. The Raiffeisen-Zentraleuropa-ESG-Aktien invests in relatively high-growth countries in Central and Eastern Europe. It deliberately avoids investments in Russia, Turkey and Greece in favour of a more stable performance.

Attractive share valuations

Despite the price rises of the last two years, the equities from the region are by no means expensive – on the contrary. In quite a few cases, corporate profits have improved or will improve more than the equity prices have reflected to date. The most important valuation ratios are still below the average values of the past. On the one hand, this is due to the economic and political risks associated with the war in Ukraine and the resulting sharp decline in interest from international investors.

On the other hand, as in the case of Hungary, there are conflicts with the EU, which potentially or actually slow down economic growth and create additional uncertainties, for example through the withholding of EU funding. The latter was also a drag on Poland for a while.

However, the conflict has been defused with the new government in Warsaw. The considerable sums of money that are gradually flowing from Brussels to Poland are likely to have a positive impact on the economy in the coming years. After all, this involves a total volume of around 137 billion euros. This is not the only reason why Poland is and will remain a particularly important country for the Raiffeisen-Zentraleuropa-ESG-Aktien.

Positive long-term outlook, despite risks

Positive long-term outlook, despite risks

The restructuring of energy supply and transport as well as digitalisation and technological advances in many areas are opening up great opportunities for forward-looking companies and investorsin Central and Eastern Europe. Any resolution of the Ukraine conflict could also bring the good earnings prospects of the region's stock markets back to the attention of international investors. Of course, it would be negative if the armed conflict were to continue for a long time or even escalate. However, neither side is likely to be really interested in this.

The last few years have also shown that the region's companies and economies have developed relatively unaffected by the situation in Ukraine. The weak growth and recession in Germany had a far greater impact on the economies of countries such as Austria, the Czech Republic, Slovakia and Hungary during this period. The latter currently remains a risk factor for these countries and the region as a whole. However, the risk is likely to recede, especially in the wake of ECB interest rate cuts and Chinese stimulus.

Among other things, the fund management has taken countermeasures by increasing investments in Poland and Romania. Both countries have a relatively strong domestic economy and are much less dependent on exports than many other countries in the region. Romania also has its own natural gas production and is very strong in renewable energies. Romanian equities have also performed very strongly so far in 2024, as have Slovenian equities.

We see Central and Eastern Europe as a region that is currently underrepresented and probably underestimated by international financial players and is waiting to be (re)discovered.

*In the area of work accidents, medium-sized companies favoured by us and generally rated as more attractive from a sustainability perspective perform less well than large oil companies such as Exxon Mobil and Chevron, which we avoid.

** In order to calculate the effect of sustainable equity investments in the fund, we used the sustainability ratios of the companies found in their sustainability reporting. CO2 emissions are generally denoted in tons of carbon dioxide equivalents (CO2e), work accidents in lost-time- injury-rate, waste in tons and water consumption in m3. The key ratios for the individual companies were multiplied by their weight in the fund or in the overall market, and the results of each key ratio were compared. Currently, we do not calculate such ratios for the bond segment of the funds, as we think that the "sustainable footprint" is attributable to the company owners, i.e. shareholders, not to the creditors, i.e. bond holders.

Conclusion

The Raiffeisen-Zentraleuropa-ESG-Aktien fund enables investors, who are aware of the risks of a regional equity investment and accept the risks associated with an equity investment, to participate in the economic development of Central Europe. The fund scores particularly well with two of Raiffeisen KAG's core competences: expertise in European emerging markets and sustainable, responsible investing.

The fund exhibits elevated volatility, meaning that unit prices can move significantly higher or lower in short periods of time, and it is not possible to rule out loss of capital.