In 2015, the third quarter was the worst for Emerging Europe as markets declined in all three months of the quarter. The Greek crisis, China's economic slowdown, falling commodity prices, weakening regional currencies, downside economy’s growth risk quoted by FED and "Dieselgate" of Volkswagen were the main contributory factors negatively affecting the region in general and some markets specifically. Emerging Europe, with a 15.6% loss (based on EUR Performance of MSCI Emerging Europe index), underperformed with respect to the Global or European Developed Market's indices (MSCI World and MSCI Europe), which declined only by 8.6% and 8.9% respectively, but outperformed Global Emerging Markets, which lost 18.1% during the 3rd quarter. All markets on the regional benchmark declined, but losses varied between 36% and 3.6%.

Country summary

The worst performing market in the region was Greece, with a 36% loss. Almost all losses were sustained in the first three trading days of August after market's re-opening. The Athens Stock Exchange was closed for the whole of July as the Greek government implemented capital controls on June 29th. After averting a "Grexit" and closing a third bailout package with the Troika, the market immediately fell on maximal limits, driven by banks on the first trading day. The situation stabilized over the following days, but banks stayed under pressure as their needs for recapitalization could have significantly dilute the value of the current shareholders.

Political uncertainty was the main trigger in Turkey. Unsuccessful negotiations between AKP and its potential coalition partners to form a new government after the June elections led to the call for new elections, scheduled for November. Spreading terror attacks and newly opened operations of the Turkish army against ISIS and the Kurds significantly increased the uncertainty. The MSCI Turkey index lost 19.7% in the third quarter as, particularly, banks and the mining industry declined. The Turkish lira weakened further, fell by 13.1% and closed above 3 TRY/USD level for the first time ever.

Falling Oil and other commodity prices were leading factors for Russian equities in the last three months. Brent Crude Oil lost 25.8%, Copper 10.7% and the wider CRB Commodity index declined by 14.7%, which almost corresponds with the 15% loss of the MSCI Russia index. The Russian ruble slumped by 18.7% to 65 RUB to USD. Some Russian commodity exporters benefited from the weaker currency, which was more than compensating for the negative impact of lower commodity prices, but Oil & Gas names were hurt by rumors of new taxation plans in order to fulfil budget revenues reduced by falling Oil prices. In September, the economy showed a series of poor macro data as industrial production fell, CPI rose, retail sales contracted and PMI surprised to the downside.

General elections scheduled for October 25th and political statements about banks, miners or retailers were the main factors which moved the Polish market. New taxes for banks, as well as proposed solutions for CHF loans could significantly hurt the sector’s profitability. Leader in the polls, the PiS party, also declared plans to introduce a turnover tax for retailers. Increasing volatility and pre-election populist rhetoric worried some investors, and the Polish market, based on the MSCI index, lost 11% in EUR terms.

The Czech Republic and Hungary were safe havens not only in Emerging Europe, but also from the perspective of the Global Emerging Markets. With losses of 6.9% and 3.6% respectively, those markets outperformed even the Developed Market’s indices on excellent macroeconomic figures. The Czech Republic updated GDP figures for Q2 to 4.6%, the second highest amount in the European Union. In Hungary, the European Commission' ESI index improved to its highest level in 12 months, suggesting that GDP growth in the third quarter should be slightly above the 3.1% reached in first half of 2015, mainly driven by consumption, as retail sales went up by 7%. In September, those two markets wrote off some of the previous gains as Volkswagen's emission scandal opened questions about the impact on economic growth, due to the fact that the automotive industry is a key factor for exports and GDP figures.

Sector recap

All sectors in the region declined in the third quarter, but Health Care gained because of the strong performance of drug-maker Gedeon Richter after the FDA approval of cariprazine as a new treatment for schizophrenia and bipolar disorder in the U.S. The worst performing sector was Financials, where mainly Greek, and partially Turkish, banks eroded significantly. However, the best performing regional bank was Erste Bank. Telecoms followed closely, driven by Turkish operators on hefty prices on the next generation frequency auctions. Utilities completed the list of worst performers, led by Polish names, which struggling on their role in the restructuring plans for coal miners.

Petr Zajíc
Senior Fund Manager, EMEA Equities
Pioneer Investments Austria GmbH
16 October 2015


Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.