05 March 2003 00:42
Making tracks in undiscovered markets: Swedish fund adopts an old-fashioned style to size up opportunities in the Baltics and Russia, writes Julie Earle
Fund manager Peter Hakansson prides himself on his boring approach. "We
are boring but this gives good returns," said Mr Hakansson, of the
Swedish-based East Capital Baltic Fund.
The fund focuses on low-risk growth stocks in Estonia, Lithuania and Latvia.
Mr Hakansson, who likes to buy undervalued stocks and wait for change, also
manages the firm's Bal tic Blue Chip and Russia funds.
Since he started the Baltic fund in June 1998, it has had a steady growth
pattern. The fund's one-year return was 50.8 per cent in US dollar terms
as of February 26, compared with a -12.7 per cent return on the Moody's
Emerging Markets Equity Fund Index.
His stockpicking style is "old fashioned", buying stocks with low
price-earnings ratio and high yields. He likes Baltic stocks with exposure to
the fast expanding economies of Russia and Ukraine.
"There are 200m people in Russia and the Ukraine that have a very high
percentage of disposable income."
Mr Hakansson also relies heavily on knowing those markets and companies well,
travelling regularly to those states and to Russia. "I like to talk to
companies about corporate governance, growth and business plans outside of
eastern Europe," he said.
He believes eastern Europe will continue to grow in the next ten years and is
looking for companies that have the potential to double their current share
prices without being overvalued.
Mr Hakansson says a weak banking system in the Baltic states has helped him
find companies with strong balance sheets and little debt. Baltic companies
were also more transparent than in the UK and US, he said.
Estonian stocks make up more than half the fund's holdings with about 30
per cent in Lithuanian companies and the rest in Latvian stocks. In
particular, he sees strong growth in consumer goods and construction.
The largest holding in the Baltic fund is Snaige, a refrigerator manufacturer
that also exports to the Ukraine and is setting up operations in Russia.
In Russia, he scours a growing number of shopping centres in Moscow to spot
trends.
"Sometimes I get new stock ideas and then research them," he said.
Mr Hakansson looks at everything from chocolate to beer and auto accessories.
Saku, an Estonian brewer, and Kalev, a chocolate manufacturer, are among his
top 10 holdings. Mr Hakansson has tapped into a boom in new shopping centres
and supermarkets through Merko Ehitus, an Estonian construction company that
makes up 10.8 per cent of the fund.
Norma, which makes car safety belts and is selling into the Russian car
market, is another holding. The fund also invests in banks such as Hansapank,
which he says has strong growth related to retail banking.
He has maintained the same portfolio strategy and turnover is low. "We
are a broker's nightmare. We normally buy and hold." If a stock
becomes cheaper, Mr Hakansson may buy more but he will sell if it becomes
overvalued in relative terms, compared with its peers.
He compares Baltic state stocks with those in western Europe or Russia.
"I do a lot of comparisons between Russia and the Baltics, Hungary,
Poland and ask 'does it still make sense if a company costs
this.'" Mr Hakansson, previously head of equities at Enskilda
Securities in Stockholm, believes Baltic markets are still undiscovered. The
competition for money is coming from eastern European funds and Russian
funds.
But he anticipates a strong stock market in the Baltic states and says the
downside is limited.
"The timetable for the European Union has been set out and this will
affect the stock market positively," he said. Eight eastern European
countries, including Estonia, Latvia and Lithuania have been invited to
become members of the EU as of May 2004.
[FTI [The Financial Times]] |
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