presentation 3 q strategy cee (eng for release)

ERSTE GROUP

Erste Group ResearchCEE Equity

CEE Equity Strategy1

CEE Equity Strategy

Henning EßkuchenCo-Head CEE Equity Research

Erste Group Research

ERSTE GROUP



DisclaimerCautionary note regarding forward-looking statement s

THE INFORMATION CONTAINED IN THIS DOCUMENT HAS NOT BEEN INDEPENDENTLY VERIFIED AND NO REPRESENTATION OR WARRANTY EXPRESSED OR IMPLIED IS MADE AS TO, AND NO RELIANCE SHOULD BE PLACED ON, THE FAIRNESS, ACCURACY,COMPLETENESS OR CORRECTNESS OF THIS INFORMATION OR OPINIONS CONTAINED HEREIN.

CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT MAY BE STATEMENTS OF FUTURE EXPECTATIONS AND OTHER FORWARD-LOOKING STATEMENTS THAT ARE BASED ON MANAGEMENT’S CURRENT VIEWS AND ASSUMPTIONS AND INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR EVENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN SUCH STATEMENTS.

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ERSTE GROUP

0,0

2,0

4,0

6,0

8,0

10,0

12,0

0 50 100 150 200 250

Public debt to GDP (2012e)

Fis

cal d

efic

it to

GD

P (2

012e

)

GreeceCCC

IrelandBBB+

SpainBBB+

PortugalBB

BelgiumAA

HU BB+

SKA

SwedenAAA

RomaniaBB+

FinlandAAA

AustriaAA+

ItalyBBB+Mastricht limit

FranceAA+

UKAAA

GermanyAAA

DenmarkAAA

PL A-CZ AA-

SIA+

Euro Area 2012E

Bubblesize shows public debt per capita in EURths ( 2012e)

JapanAA-

USAAA+

NLAAA

The debt crisis is a global crisisGross public debt and fiscal deficit per capita (EU R ths)

Source: Erste Group Research, European Commission, ratings by S&P SD = Selective Default



ERSTE GROUP

Source: AMECO, IWF, Erste Group Research

161124

116114

107101

929191

8281

7774

7067

565555

5148

4334

3018

7,3

1,9

8,3

4,7

8,1

3,1

3,2

8

4,5

0,9

6,4

2,5

3

4,4

4,5

3,5

5,3

4,3

1

4,5

3,5

3,4

2,5

1,9

0 50 100 150 200

GriechenlandItalienIrland

PortugalUSA

BelgienEurozone

Vereinigtes KönigreichFrankreich

DeutschlandSpanienUngarn

ÖsterreichNiederlande

KroatienPolen

SerbienSlowenien

FinnlandSlowakei

TschechienRumänien

UkraineBulgarien

Debt (2012F, % ofGDP)Deficit (2012F, %of GDP)

Maastrichtlimit

Euro Areaaverage (2012E)

� All CEE countries except Hungary have maintained their aggregate debt below 60% of GDP

� Hungarian debt is below the Eurozone average (2012e: 76% vs. 90% of GDP)

� The share of government bonds held outside the respective countries* is relatively low in the CEE region

� in CEE6, it accounts for about a quarter of public debt, or 15% of GDP

� In Greece, the share accounts for two thirds of public debt, or 90% of GDP

*2010 data

Government debt (in % of GDP, 2012e)

In terms of GDP, public debt is low and well below the Eurozone average



ERSTE GROUP

Sources: Eurostat, Ameco, Erste Group Research

7,3

4,7

1,9

4,3

4,5

4,4

6,4

3,5

2,5

3,2

3,1

5,3

8,3

8

4,5

1,9

0,9

3

1

2,5

3,4

8,1

4,5

3,5

2,5

-6 -4 -2 0 2 4 6 8 10

Greece

Portugal

Italy

Slovenia

Croatia

Netherlands

Spain

Czech Republic

Hungary

Eurozone

Belgium

Serbia

Ireland

UK

France

Bulgaria

Germany

Austria

Finland

Ukraine

Romania

USA

Slovakia

Poland

Turkey

GDP growth

Deficit (2012F, % ofGDP)

� The growth rates in the region are

clearly above those of the developed

markets

� The budget deficits differ widely among

the CEE and Western European countries

� Basically the budget deficit falls if the

economy is growing . Countries with

relatively high deficits (in relation to their

growth rates) are still faced with an

arduous consolidation process

Consolidation is imperative - but not only in the CEE countries

Ranked by GDP growth (in % of GDP, 2012e)



ERSTE GROUP



CEE market overview CEE macro

Source: IFO, Erste Group Research

� Weak sentiment and uncertainty biting into real economy

� Economic recovery in the region postponed

� Revision for CZ, HR and PL – HU, RO downside risk –SK revised up

� PMIs mixed� Turkey and Poland remain

strongest in growth –better balance of export and domestic demand.

� Hungarian stimulus positive – risk remains on the funding side

GD

P g

row

th,

%y/

yIF

O b

usin

ess

cycl

e cl

ock

Real GDP growth (y/y) 2010 2011f 2012f 2013fCroatia -1.2% n.a. -1.8% 1.0%Czech Republic 2.6% 1.7% -0.8% 0.9%Hungary 1.3% 1.7% -0.5% 1.2%Poland 3.8% 4.4% 2.6% 3.0%Romania -1.6% 2.5% 1.2% 2.9%Serbia 1.0% 1.6% 0.0% 2.0%Slovakia 4.2% 3.3% 2.0% 2.0%Turkey 8.9% 8.5% 3.5% 4.5%Ukraine 4.2% 5.2% 1.0% 3.0%Austria 2.3% 3.0% 0.9% 2.0%Euroland 1.7% 1.5% -0.2% 1.1%CEE8 average 2.4% 3.2% 1.1% 2.3%CEE8+Turkey 4.7% 5.0% 1.9% 3.1%

ERSTE GROUP



CEE market overview Driving forces – Sentiment/ZEW

-120.0

-100.0

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

5/31

/200

7

9/30

/200

7

1/31

/200

8

5/31

/200

8

9/30

/200

8

1/31

/200

9

5/31

/200

9

9/30

/200

9

1/31

/201

0

5/31

/201

0

9/30

/201

0

1/31

/201

1

5/31

/201

1

9/30

/201

1

1/31

/201

2

5/31

/201

2

Eurozone - ZEW current situationEurozone - ZEW economic expectationsCEE - ZEW current situationCEE - ZEW economic expectations

� Previous increases in sentiment wiped out again

� In particular expectations decreased again

� CEE still seen better than Eurozone in absolute terms

� Inflation seen heading south

� Appreciation trend for regional currencies

� Stock market expectations revised downwards

ZE

W –

Eur

ozon

e vs

. C

EE

Source: Bloomberg, ZEW

ZE

W/E

rste

–cu

rren

t vs

expe

ctat

ions

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb

-12

Mar

-12

Apr

-12

May

-12

Jun-

12

Current eco. situation Economic expectations

ERSTE GROUP



CEE market overview Inflation, rates and currencies

CPI (eoy) 2010 2011f 2012f 2013fCroatia 1.8% 2.1% 4.2% 2.8%Czech Republic 2.3% 2.4% 3.1% 1.2%Hungary 4.7% 4.0% 5.2% 3.4%Poland 3.1% 4.7% 3.0% 2.6%Romania 8.0% 3.1% 3.7% 3.5%Serbia 10.3% 7.0% 7.6% 4.5%Slovakia 1.3% 4.4% 3.5% 3.0%Turkey 6.4% 10.4% 8.0% 6.5%Ukraine 9.2% 4.6% 4.5% 14.0%Austria 1.7% 3.6% 2.4% 1.9%Euroland 1.6% 2.7% 2.1% 1.6%CEE8 average 4.4% 4.0% 3.7% 3.9%CEE8+Turkey 5.1% 6.2% 5.2% 4.8%

� Oil price adds to weak domestic demand – inflation currently no concern

� Paves the way for rather dovish stance of regional central banks

� The Czech National Bank has already cut rates to all-time low (0.50%)

� PLN and HUF remain the most volatile currencies in CEE

� Hungary moved closer to the kick-off of formal talks with the IMF - HUF rallied 6% (vs. euro since the beginning of June)

� RON is traded in a narrow range due to the CB interventions

Infla

tion

Source: Erste Group Research

Cur

renc

ies

Currency/EUR (average) 2010 2011f 2012f 2013fCroatia 7.3 7.4 7.6 7.5Czech Republic 25.3 24.6 25.1 24.3Hungary 275.4 279.2 295.0 279.0Poland 4.0 4.1 4.3 4.0Romania 4.2 4.2 4.4 4.4Serbia 103.1 102.0 114.0 115.0Turkey 2.0 2.3 2.3 2.3Ukraine 10.5 11.1 10.8 13.1

ERSTE GROUP



CEE market overview Deficits and imbalances

� C/A deficit – consumption an ambiguous argument

� Turkey the usual suspect –energy driven, consumption part declining

� Ukraine shows strong increases of household consumption (4Q11 75% in GDP)

� Serbia high, but improving FDI

� Consolidation efforts show effect on fiscal deficit

� Turkey increasing due to lower growth

� HR, SR, SK to be above 4% in 2012

� PL, HU to be below 3% in 2012

� Romania is to slightly overshoot its deficit target for this year due to elections

Source: national statistics, Erste Group Research

-9.0%

-8.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

2010 2011f 2012f 2013f

Poland Romania CEE8 average

C/A

def

icit

(%of

GD

P)

Fis

cal d

efic

it (%

of G

DP

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

2010 2011f 2012f 2013f

Serbia Turkey Ukraine CEE8 average

ERSTE GROUP



CEE market overview Deleveraging

� Banks in EURO-periphery were in the center of cross-border deleveraging

� The low level of public debt put CEE economies at lower risk compared to many highly-leveraged euro area economies

� No substantial outflow of foreign funding in CEE banks

� Hungary is an outlier in CEE due to unorthodox policy measures resulted in a reduction of Hungarian banks’ balance sheets

Source: ECB, Erste Group Research

Change in foreign liabilities of banks(Mar-2012 vs Mar-2011 as % of GDP2011)

less than -2

between -2 and 0

between 0 and 2

more than 2

Legend

-0.6

29

5.1

-46.920

-8.4

-6.3-14.5

-5.7

-12.5

-1.8

-6.7-1.6

1.3

1.9-5.8

-0.3

-1.60.7

8.2-13.5

9.1

5.2

1.8

ERSTE GROUP



CEE market overview Driving forces – Liquidity

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

01

/31

/12

02

/29

/12

03

/31

/12

04

/30

/12

05

/31

/12

06

/30

/12

07

/31

/12

08

/31

/12

09

/30

/12

10

/31

/12

11

/30

/12

12

/31

/12

ytd

Global Emerging Markets Asia ex-JapanLatin America EMEAPacific All dedicated Emerging Market

USD mn� Until March inflows added

up to USD 25bn� April/May wiped out USD

9.6bn by redemptions for all dedicated emerging market equity funds

� Global emerging market equity funds holding up best

� Stock exchange turnover still down by some 30% y/y

� M/m some moderate increases (CEE 8: +16%)

Source: Emerging Portfolio Research FESE

11%

2% 4% 4%11% 9%

6%2%

0%

-26%

-19%

-33%-34%-34%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

CEE 8 Deutsche Börse NYSE Euronext Turkey

Fun

d flo

ws

–de

dica

ted

emer

ging

mar

ket e

quity

fu

nds

Sto

ck e

xcha

nge

turn

over

ERSTE GROUP



CEE market overview Driving forces – Growth

-250

-200

-150

-100

-50

0

Jun-

11

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb

-12

Mar

-12

Apr

-12

May

-12

Jun-

12

2012 2013 2014

� Growth remains the key concern

� Revision rates started to bite into earnings outlook

� Earnings growth for 2012 at mere 7.8% (EUR)

� In particular 2013 and 2014 estimates are being revised down

� Potential turning point identified early 2012 did not work.

Source: Factset, Erste Group Research

-250

-200

-150

-100

-50

0

50

Jun-

12

Apr-1

2

Feb-1

2

Dec-1

1

Oct-11

Aug-1

1

Jun-

11

Apr-1

1

Feb-1

1

Dec-1

0

Jan-

00

Jan-

00

0

5

10

15

20

25

Earnings revision 2012 (rhs) Earnings revision 2013 (rhs)

Forward P/E (lhs) Earnings growth (lhs, %)

Ear

ning

s re

visi

ons

CE

ETu

rnin

g po

int m

isse

d

ERSTE GROUP



CEE market overview Driving forces – Valuation

8.9

Average 11.6

5.0

7.0

9.0

11.0

13.0

15.0

17.0

11/3

0/20

00

11/3

0/20

01

11/3

0/20

02

11/3

0/20

03

11/3

0/20

04

11/3

0/20

05

11/3

0/20

06

11/3

0/20

07

11/3

0/20

08

11/3

0/20

09

11/3

0/20

10

11/3

0/20

11

� Valuations are still comfortably below historical levels

� Relative to weaker growth outlook, however, valuation argument looses some appeal


12M

forw

ard

P/E

Val

uatio

n vs

gro

wth

, 12

M fo

rwar

d

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

Oct

-09

Dec

-09

Feb

-10

Apr

-10

Jun-

10

Aug

-10

Oct

-10

Dec

-10

Feb

-11

Apr

-11

Jun-

11

Aug

-11

Oct

-11

Dec

-11

Feb

-12

Apr

-12

Jun-

12

ERSTE GROUP



CEE market overview Driving forces – Risk aversion

-65.0

-45.0

-25.0

-5.0

15.0

35.0

55.0

75.0

Nov-2

007

Mar

-200

8Ju

l-200

8Nov

-200

8M

ar-2

009

Jul-2

009

Nov-2

009

Mar

-201

0Ju

l-201

0Nov

-201

1M

ar-2

011

Jul-2

011

Nov-2

011

Mar

-201

2

OECD - Europe OECD Eastern Europe Major Five Asia� Apart from fundamental outlook just any lasting change in sentiment is still able to provide decent performance

� Equity market performance is still significantly below of what economic outlook would justify

� Equity risk premia are elevated again, reaching 670bps vs average of 350bps

OECD stopped providing a sample for Eastern Europe, figures shown are averaged numbers based on individual countries Source: OECD, Bloomberg, Factset

Spr

ead

–C

LI to

sto

ck

mar

ket p

erfo

rman

ceE

quity

ris

k pr

emia

0.01.02.03.04.05.06.07.08.09.0

10.0

2/28/2002

10/31/200

6/30/2003

2/29/2004

10/31/200

6/30/2005

2/28/2006

10/31/200

6/30/2007

2/29/2008

10/31/200

6/30/2009

2/28/2010

10/31/201

6/30/2011

2/29/2012

0

500

1,000

1,500

2,000

2,500

Average Earnings yield - 10yr Gov Historical average NTX

ERSTE GROUP



CEE market overview Relative view – markets

Poland broad

PX

CroatiaRomania

WIG 20

Bux

ATX

Turkey

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

5.0 6.0 7.0 8.0 9.0 10.0 11.0

P/E (foreward, 12M)

EP

S g

row

th (

forw

ard,

12M

, %) Bubble size

indicates discount to implied fair value

� Suffering from high risk aversion Romania, but also Austria stand out

� Regional outperformer Turkey should still have most potential

� Growth outlook remains distorted by some base effects.


Rel

ativ

e vi

ew in

cl.

disc

ount

to im

plie

d fa

ir va

lue

Rel

ativ

e vi

ew in

cl.

ytd

perf

orm

ance

Russia

Romania

PX

ATX

BUX Turkey

WIG 20Poland

Slovenia

Croatia

-30

-20

-10

0

10

20

30

40

50

60

70

4.5 5.5 6.5 7.5 8.5 9.5 10.5

P/E (forward, 12M)

EP

S g

row

th (

forw

ard,

12M

, %)

Bubble size indicates ytd performance in EUR

ERSTE GROUP



CEE market overview Allocation proposal CEE Equity 3Q 2012

Austria

CEE

Poland

RO & BG

Russia

SEE

Turkey

Ukraine

Underweight Neutral Overweight

� Turkey – remains best choice for growth, concerns on C/A easing

� Poland – growth, size� Austria – regional play,

but dependent on banks� CEE / Hungary – recovery

from low base, political risk,Czech Republic –stable, defensive, Slovenia – liquidity

� SEE – liquidity � RO & BG – transactions

delayed� Russia – whatever

happens to the oil price

Exp

ecte

d re

turn

s


-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

Pol

and

Tur

key

Aus

tria

CEE

Rus

sia

RO

&BG

Ukr

aine

SEE

Profitability Growth Valuation Momentum & analyst view Risk Size

%

Allo

catio

n pr

opos

al

ERSTE GROUP



CEE market overview Relative view – sectors

-30

-20

-10

0

10

20

30

40

Ba

nks

Oil

& G

as

Aut

om

ob

iles

& P

arts

Tra

vel &

To

uris

m

Te

chn

olo

gy

Indu

stria

l Go

od

s &

Se

rvic

es

Hea

lthca

re

Pe

rso

na

l & H

ou

seh

old

Go

ods

Re

tail

Util

itie

s

Insu

ran

ce

Fo

od

& B

eve

rage

s

Te

leco

m

Re

al E

sta

te

Me

dia

Ch

em

ical

s

Bas

ic R

eso

urc

es

Co

nst

ruct

ion

& M

ate

rials

Jun-12 May-12� Turkey contributes strongly to any sector performance

� Despite concerns on growth cyclicals ahead

� Basic resources remain most fragile in terms of growth recovery

� Food and beverage suffers from its SEE listings (liquidity)

� Automobiles receive their push equally from Turkey and Poland

� Construction to earlier yet� Healthcare as defensive

anchor


Ear

ning

s re

visi

on ra

tes

by

sect

or –

2012

eV

alua

tion,

gro

wth

and

yt

d pe

rfor

man

ce

UtilitiesTelecom

Technology

Retail

Real Estate

Personal

Oil

Insurance

Industrial

Healthcare

Food

Construction

Chemicals

BasicResources

Banks

Autos

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

-1 4 9 14 19

Forward P/E (12M)

For

war

d E

PS

gro

wth

(12

M)

Bubble size indicates ytd performance in EUR

ERSTE GROUP



CEE market overview Top picks


Austria Poland Turkey Central Europe* SEE & Other**

Banks + Raif feisen Bank Int. + Isbank+ Yapi Kredi+ Halkbank

Basic resources / + Semperit + Bogdanka + PegasChemicals + RHI

+ voestalpine+ Lenzing ( ��) - KGHM

Construction /Constr. materialsReal estate / + Immofinanz + Torunlar REIT + Fondul Propr.Holdings + CA IMMO + Emlak Konut REIT

Health care + Selcuk + Richter Gedeon + Krka+ Egis

Industrial goods + Polytec + Tofas& services / Autos + Dogus Otomotive (new )

- Ford OtosanInsurance + Vienna Ins. Group + PZU

- UNIQAOil & gas + OMV + Aygaz + MOL + Petrom

+ Tupras - PKN- Unipetrol

Personal goods / + Turkish Airlines + Fortuna ( ��)Food / Travel

Retail / Wholesale + Migros Ticaret

- BIMTelcos & Technology + Kapsch TrafficCom + TPSA + Turkcell

Utilities / Media + Cyfrow y Polsat + CEZ + Transgaz+ Transelectrica

* Czech Republic, Hungary, ** Romania, Ukraine, Blue: Top 10 Pick , Red: Expected underperformers

ERSTE GROUP



CEE market overview Conclusions

� Macro

� Risk aversion and sentiment

� Fundamentals

� Sectors and companies

� Markets

• Uncertainty biting into real economy, recovery dela yed

• Sentiment went sour again, equity risk premia almos t at all-time highs

• Growth outlook deteriorated, makes valuation a bit less an argument

• Selective focus on financials and cyclicals

•Turkey and Poland ahead, Russia depending on oil price. CEE driven by Hungary, SEE waiting for liqui dity.

ERSTE GROUP



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presentation 3 q strategy cee (eng for release)

Economy & Finance