The Slovenia Times

A Watershed Year



Why were these foreign offerings regarded as being so much better than those already available on the market? We were already familiar with the success of local funds before the EU accession, however, these funds were constricted by legislation and only able to invest in the Slovenian market place. There was a lack of globally and sector oriented funds, which Slovenian investors were desperately seeking access to. Local funds fight back The diverse offerings of the foreign funds prompted local investment firms to try their hands at managing regional funds. DZU MedveSek PuSnik were the first to get started when they launched their MP-ASIA.SI fund. Other DZU's quickly followed suit; KBM Infond launched their BRIC markets fund, which invests solely in Brazil, Russia, India and China. Two months later, lIirika introduced their Modri korak fund, which covers all the tiger markets (rapidly expanding or emerging markets), such as those in the former Yugoslav states. Sector oriented funds also started appearing; Infond Energy and MP-ENERGY.SI both covering the energy sector and MP-TECH.SI covering technology stocks. It now seems as though there's no limit to the diversity of funds as there are funds covering stock market indices (MP-EUROSTOCK.SI), socially responsible funds (Krek's Klas fund), money market funds (KD MM) and fund funds (KD First selection). Although local firms tried hard to stem the foreign onslaught, they had little success. It is a lot easier to open a fund from abroad than it is to found a new one. Foreign companies introduced 83 new funds last year compared to the 13 that local investment firms were able to get off the ground. The same pattern is expected to be seen this year. Tiger funds - high risk, high returns Looking at profitability only, regionally oriented funds and those covering the tiger markets, such as Capital Invest Eastern Europe Stock and Raiffeisen-Eurasien-Aktien did extremely well last year. Of the Slovenian managed funds the globally oriented funds MP-GLOBAL.SI and Beta-delniSki stood out. Although most funds reported pleasingly good results, there were exceptions, particularly among the funds focused on the local market, a number of which actually reported a loss for the year. In this instance, this reflected more upon the state of the local market than it did on the fund managers. Slovenian investors are being increasingly attracted by the high returns currently being posted by the funds focusing on the emerging markets. Hopefully these investors are aware of how fickle if not fragile these markets can be and will switch to other funds well before any jitters set in. Conditions right for economic growth High economic growth and good business results from last year in most foreign capital markets are contributing to the solid share market performances we have being witnessing for the last few months. Today the key question is - what does the future hold? The most recent reports indicate that economic growth will continue across the globe well into the second quarter of 2006 - underpinned by a relatively stable global market place and good returns from last year. Compared to the key American interest rates, world interest rates are much lower now than they have been at any other time in last decade. The combination of a growing business sector and favourable financial conditions is a good recipe for world economic growth. American market losing its appeal Although most pundits are predicting favourable growth in the world's markets, we can expect considerable change in the underlying structure of the growth. Which countries will be the biggest contributors? Well, don't expect to see the USA on that list. Their trade deficit is rapidly and constantly increasing and, at the end of December 2005, stood at a record USD 725.8 billion. Although the United States would like to bring down their inflation rate, it is likely to stay above two per cent throughout 2006. Expansive developmental policies in the more attractive developing BRIC markets (Brazil, Russia, India, and China), are likely to cause investors to withdraw from the US market, which will eventually trigger a slide in the American markets. JP Morgan predicts that the EUR/USD exchange rate will be around 1.15 by the end of June and 1.25 at the end of year. Japan, China and India loom largest Asian countries have finally woken from their extended slumber and have justified their economic growth with accelerated exports over the last five years. Their increasing domestic consumption will also contribute to higher economic growth in 2006. Japan, China and India, the Asian states with the greatest purchasing power, won't be solely dependent on the export of goods in the long term. Japan has taken centre stage and share prices on the Tokyo commodity exchange have been rising sharply since last June. Analysts are predicting that Japan's inflation rate should reach 0.5 per cent by the end of 2006, which is good news for the global economy. They are also predicting that it will continue to rise throughout 2007 to somewhere nearer to one per cent. Focus on Balkans We realized years ago that the Balkans could present investors with tidy profits. We have been active buying shares in these markets since then based on both verified and unverified information. Most investors believed that the Lek fairytale would be repeated there and it frequently has been. However, there have also been a number of failures that have tended to balance the ledger a bit. Companies in the Balkans are generally undervalued and the entire region has large, virtually untapped potential; it is moving closer to the European Union and most countries are stabilizing politically and economically. The economic growth rate of the Balkans was three times that of the old EU member states in 2005. The service sector is growing rapidly too - and don't forget - the Balkan Peninsula comprises 130 million people so it has purchasing power. Lots of it! MP-BALKANS.SI breaks new ground In the middle of February 2006, Slovenia's securities market regulator, Agencija za trg vrednostnih papirjev, issued a license to DZU MedveSek PuSnik to operate the MP-BALKAN.SI mutual fund. This is a mutual fund focusing on the capital markets of the region - Slovenia, Croatia, Bosnia and Herzegovina, Serbia and Montenegro, Macedonia, Bulgaria, Romania, Greece and Turkey. Its investment strategy is sector based, i.e. banking, pharmaceuticals, telecommunications, trade, tourism, etc. The funds speciality, however, is its investment coupons which can be traded on the Ljubljana exchange, where it will seek to raise 2 million euros. The KD Balkan fund differs from MP-BALKAN.SI as it will also include Austria and that it is encouraging a medium to long term view on the investment, in the order of three to five years. It also differs in that it will not be sector focused. There are another two funds about to hit the market - Ilirika Vzhodna Evropa and Publikum Balkan. The Ilirika Vzhodna Evropa fund will invest both in central European (Slovenia, Poland, the Czech Republic, the Slovak Republic and Hungary) and south-eastern European markets (Romania, Bulgaria, Croatia, Bosnia and Herzegovina, Serbia and Montenegro, and Macedonia). The Publikum Balkan fund will invest in the markets of Croatia, Bosnia and Herzegovina, Macedonia, Serbia and Montenegro, Slovenia, Romania, Bulgaria, Greece and Turkey and will focus on undervalued companies and those likely to be acquisition targets.


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