Emerging market specialist Markus Brück believes Eastern European stock prices have bottomed out and he is buying into the region on a conviction the downside risk of holding them is now limited.
The Euro Stars AAA-rated manager has upped his exposure to Russia, the Czech Republic, Hungary and Poland in his Metzler Eastern Europe fund on the expectation their economies will improve next year.
'There really is no reason not to go into these countries now as there is very limited downside potential from where they are trading now,' Brück told Citywire Global.
'We think that the situation in central Europe will get better after the spring of next year and this will in turn boost the trade figures of these core eastern European economies.'
Turkish companies have been popular amongst investors this year as its large domestic consumption market has allowed its companies to be considered largely ring-fenced from slowing demand from central Europe compared to other Eastern European economies.
However, Brück added that the fund suffered in the year from a lack of exposure to Turkish stocks. The fund's current top holdings are weighted towards Russia (40%), Poland (22%) and Hungary (6%) and his exposure to Turkish stocks remains comparatively small at just over 1%.
On the other hand, Czech and Hungary have seen their economies continue to be in recession in the third quarter of this year, partly due to declining exports to the eurozone.
'Even if we do see worsening macro headlines from the core eastern European economies, we think that the prices are currently low enough to price this in,' said Brück who expects worsening macro data from Poland at the beginning of next year.
Brück added he will increase exposure to consumption and banking sectors, whilst steering clear of utilities and telecoms.
'We stay away from utilities companies due to their exposure to energy prices. For telecoms, we're seen margins squeezed through growing competition amongst players.'
'We feel more confident in consumption names and banks that will profit from a growth of credit.'
The Metzler Eastern Europe Class A fund returned 2.1% in the three years to the end of October. Its benchmark, the Nomura Central & East European index, returned 1.5% in the same period.
Markus Brück will be appearing in our next December/January 2012 issue of Citywire Global magazine as part of our Performance Clinic feature.