After a difficult year of 2022 on the markets, many asset classes saw rebounding performances in 2023. While the central banks' turnaround on interest rates ensured a “return to normality” on the bond market, the focus on the equity market was primarily on technology companies. In the Funds exclusive series, the fund managers of selected funds look back on developments of the previous year and give their assessment of what the markets could expect in 2024. (Note: Prognoses are not a reliable indicator of future performance.)

"In the coming months, the local CEE bond markets should be able to benefit from from an easing of interest rate policies in these countries. That being said, temporary price declines cannot be ruled out after the developments of recent weeks." 

Anton Hauser, fund manager ERSTE BOND DANUBIA

Fund & Performance

ERSTE BOND DANUBIA mainly invests in government bonds from Eastern-, Southeastern Europe, the former Soviet Union and Turkey. In addition to bonds in local currency, issues are held in hard currency (EUR, USD hedged in EUR).

Note: Past performance is not a reliable indicator of future performance.

Performance since start of the fund. The performance is calculated in accordance with the OeKB method. The management fee as well as any performance-related remuneration is already included. The issue premium which might be applicable on purchase and as well as any individual transaction specific costs or ongoing costs that reduce earnings (e.g. account- and deposit fees) have not been taken into account in this presentation.

Commentary by fund manager Anton Hauser

How did the CEE bond markets perform in 2023?

In the past year, the Polish zloty and the Hungarian forint appreciated against the euro, which was mainly due to falling recession probabilities, improving current account balances, and falling inflation rates. The forint also benefited from the Hungarian central bank's restrictive monetary policy, while the zloty gained against the euro, particularly after the parliamentary elections in October, which heralded a political turnaround.

The Czech koruna incurred a minimal depreciation and the Romanian lei moved sideways against the euro, while the Turkish lira remained on its downward trend. Following the presidential elections in May, the central bank embarked on a more orthodox path, but the measures taken so far, such as massive interest rate hikes, have not yet been able to eliminate the pressure on the Turkish lira.

Yields on the local bond markets of Central European countries continued to decrease, primarily due to falling inflation rates, with spreads narrowing massively in some cases compared to German Bunds. We observed a similar trend in hard currency bond spreads. In Turkey, prices for local government bonds were kept artificially high before the elections, but the adjustment process that began in June led to significant yield increases and price losses.

 

What do you expect on the markets for 2024?

In the coming months, the local CEE bond markets should be able to benefit from further declines in inflation rates and thus from an easing of interest rate policy in these countries. That being said, temporary price declines cannot be ruled out after the developments of recent weeks.

The development of currencies, on the other hand, will depend heavily on the global economy, although we assume that significant losses will only occur in the event of a global hard landing. In Turkey, the economic stabilisation should continue, but we believe that further currency and bond price losses are not unlikely. All in all, we expect ERSTE BOND DANUBIA to perform positively in the coming months.

Note: Prognoses are not a reliable indicator for future performance.

 

Separation of Russian assets

Due to the current geopolitical situation in Russia and Ukraine and the associated comprehensive EU and US sanctions against Russia, it is not possible to trade Russian securities. As it is currently not foreseeable when or with what liquidity and at what prices trading in Russian securities will be possible again on any future trading centres, the management company Erste Asset Management GmbH has decided to separate the non-tradable (illiquid) Russian assets from the investment fund in accordance with the legal and regulatory options. The fund assets of the investment fund were split into two parts as a result of the spin-off. One part of the fund assets now consists of the tradable assets without the Russian assets. This part remains in ERSTE BOND DANUBIA. The second part, labelled “ABW ERSTE BOND DANUBIA – Investmentfonds in Abwicklung” (N.B. Investment Fund in Liquidation), serves the sole purpose of liquidating the illiquid spin-off assets of ERSTE BOND DANUBIA. These illiquid Russian assets will be realised in the best interests of the fund shareholders as soon as conditions permit.

ERSTE BOND DANUBIA

Disclaimer

This document is an advertisement. Please refer to the prospectus of the UCITS or to the Information for Investors pursuant to Art 21 AIFMG of the alternative investment fund and the Key Information Document before making any final investment decisions. Unless indicated otherwise, source: Erste Asset Management GmbH. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to Art  21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011. The fund prospectus, Information for Investors pursuant to Art  21 AIFMG, and the Key Information Document can be viewed in their latest versions at the website www.erste-am.com within the section mandatory publications  or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the website www.erste-am.com. A summary of investor rights is available in German and English on the website www.erste-am.com/investor-rights as well as at the domicile of the management company.

The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.

Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to Art 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.

Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.