Investment focus: Central and Eastern Europe

The fund Raiffeisen-Zentraleuropa-ESG-Aktien focuses on the economically successful and politically stable countries of Central and Eastern Europe. It prefers to invest in those countries in Central and Eastern Europe that demonstrate the most promising solid growth potential and favourable political and institutional environment. The emphasis is therefore primarily on equities of companies that are headquartered or have their main operations in Poland, Austria, Hungary, the Czech Republic, Romania, Slovakia, Slovenia, Croatia, Lithuania, Latvia and Estonia. However, companies outside these countries may also be considered if they conduct a significant proportion of their business in the region.

What makes the region so attractive for equity investments?

• Convergence trend: Countries in the region are growing faster than the ‘old’ EU states and are approaching the EU average in terms of economic output per capita, strongly supported by EU financial aid.

• Strong investment momentum in infrastructure, energy transition, and digitalisation.

• Significant valuation discounts during periods of geopolitical uncertainty offer attractive long-term buying opportunities.

• The focus is primarily on companies, sectors, and countries that benefit from the convergence process, infrastructure and investment programmes – for example, the transformation of energy and transport infrastructure – as well as those that promise strong growth, such as in the technology sector.

Regional expertise combined with a focus on sustainability

In addition to decades of expertise in the region, underpinned by a high degree of continuity in the fund management team, the fund stands out for its sustainable investment approach based on ESG criteria.

The Raiffeisen Central Europe ESG Equity Fund enables investors to invest in companies operating responsibly in the region, thereby supporting and promoting more sustainable business practices. The fund applies specific exclusion criteria for investments in activities that are highly harmful to the environment or socially problematic (e.g. coal and certain fossil fuels). The aim is to promote more resilient business models in the long term whilst enabling positive contributions to regional sustainability goals (infrastructure, energy efficiency, social stability). The fund therefore places great emphasis on sustainable growth drivers (e.g. energy efficiency, infrastructure modernisation, digitalisation, healthcare).

Current market trends and outlook

Most equity markets in the region have risen sharply in recent years. Soaring corporate profits, as well as hopes for an end to the war in Ukraine and for strong economic impetus from the country’s eventual reconstruction, along with the announced massive investment programmes by the EU and Germany, were key drivers of this. In addition, equity markets in Central and Eastern Europe were priced very attractively compared to the global average. They have since closed some of this valuation gap, but a significant portion of it remains.

The region’s long-term growth drivers remain intact, though this does not mean that stock price rises will continue seamlessly or at the same pace. Price corrections are possible at any time, and with the war in Iran, new challenges loom in the form of rising prices and/or supply bottlenecks for oil and gas, fertilisers, and many other products. Much will therefore depend, both for the region and globally, on how quickly the war in Iran is resolved and the Strait of Hormuz reopened. The longer this takes the greater the risks to the economy and to stock prices.

The recent change of government in Hungary could provide a positive impetus. This is particularly true if, as a result, billions in EU funding for the country – which Brussels had previously withheld, mainly due to shortcomings in the rule of law in Hungary – are released. Companies in other countries in the region could also benefit from this.

We view Central and Eastern Europe as a region that remains underrepresented among international investors and is likely also widely underestimated – in short, a region waiting to be (re)discovered.

Impact assessment

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 Raiffeisen-Zentraleuropa-ESG-Aktien 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.