While the stock markets climbed to new record highs in the first half of the year, the first central banks also initiated a turnaround in monetary policy by cutting interest rates. Will the environment remain positive?

In the Funds exclusive series, the fund managers of selected funds look back on developments in the first half of 2024 and give their assessment of what the markets could expect in 2024. (Note: Prognoses are not a reliable indicator of future performance).

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 the first half of the year?

The Polish zloty, the Czech koruna, and the Romanian lei have moved sideways in the year to date against the euro despite healthy current account balances, improving growth prospects, and a positive risk sentiment. The Hungarian forint was the only CEE currency to suffer losses, mainly due to an expansionary monetary policy.

The Turkish lira continued its downward trend. The Turkish central bank did not raise its key-lending rate any further in April, despite stubbornly high inflation. It was left at 50% after the key-lending rate had been surprisingly raised from 45 to 50% in March. The tight monetary policy stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation can be observed. The persistently high inflation rates mean that a nominal devaluation is necessary to at least partially offset the extremely high inflation differential.

Yields rose on the local bond markets of the Central European countries. The improving economic outlook and lower than expected price declines led to this development. Yields in Turkey also rose by around 5%, supported by the central bank's interest rate hike. Foreigners have started to build up positions in local Turkish government bonds again. Hard currency bonds were very well supported by the generally high risk appetite, with spreads already at a historically very low level.

 

What do you expect on the markets for the rest of the year?

We expect the CEE markets to deliver a positive performance in the coming months. A somewhat weaker economy could drive bond prices up again, while currencies should continue to benefit from the prevailing risk appetite. In the second half of the coming six months, the US elections will become the focus of market interest and lead to increased volatility, although the Central and East European economies should not suffer any significant disadvantages from any protectionist US economic policy that may be triggered by the elections. 

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.