European fund managers have tentatively increased their exposure to emerging European government debt, taking heart from the resounding Yes the Irish gave to EU enlargement last weekend. This vote to ratify the Nice treaty, which cleared the way for 10 mainly eastern European states, including Hungary, Poland, Slovakia and the Czech Republic, to become EU members, had lessened some of the uncertainty around the plan, they said.
Irish fund managers said the move was expected, given the higher yield on accession state paper and the greater security going forward that EU membership would bring. But they suggested the time to move into the eastern European market would have been ahead of the Nice vote.
Swiss fund manager Lombard Odier Darier Hentsch said yesterday it had already transferred around €8 million, the entire cash amount held in its EU Convergence Bond Fund, into bonds. "Our general policy was one of caution, reflected in our cash position, short maturities and our hedged currencies... After the weekend, we're buying into the market," Mr Auke Koopal, head of fixed income, said on the sidelines of a presentation on the bank's fixed-income funds. As a result, Lombard Odier Darier Hentsch had increased exposure in Slovak paper to 17 per cent from 11 per cent and boosting Polish government bonds to 21 per cent from 16 per cent. It also removed its currency hedging, and while its investment in Hungarian bonds fell to 35 per cent from 40 per cent in the €105 million fund, the bank switched from the short end of the market to longer maturities.
Mr Michel Aubenas, who manages €80 million in converging Europe debt at French insurer AXA described the Irish vote as positive for the market and said he had since increased the duration on Polish government debt.
Others were more cautious. Swiss giant UBS said the vote was not enough to remove some of the risks surrounding the project.
Ms Charlotte Kroher, senior analyst at Activest, the fund management arm of Germany's HVB Group, said Polish and Slovak paper still offered falling yields in a stable currency environment, but argued that the smart money would have already been in the region for some time.
- (Reuters)
