Fund portrait of Raiffeisen-Zentraleuropa-ESG-Aktien

The fund Raiffeisen-Zentraleuropa-ESG-Aktien focuses on the economically successful and politically stable countries of Central and Eastern Europe. Investments are primarily made in equities of companies that are headquartered or have their main activities in Poland, Austria, Hungary, the Czech Republic, Romania, Slovakia, Slovenia, Croatia, Lithuania, Latvia, and Estonia. Companies outside these countries may also be considered if they conduct a significant proportion of their business in the region.

Pros: growth region with intact convergence trend

Despite the war in Ukraine and the current weak economic growth in Germany, the Central and Eastern European region remains on a solid positive development path, with economic growth around twice as high as in the "old" EU countries. The convergence trend remains fully intact, such as the gradual convergence of incomes to EU-average. This process is strongly supported by EU financial transfers and EU funding programmes, some of which are very extensive. The Czech Republic, Slovakia and Poland in particular, as well as the Baltic EU states, have already made very good progress along this path and are already at around 70 to 80% of the average EU economic output (measured in terms of gross domestic product (GDP) per inhabitant). This means that countries such as Croatia and Romania, as well as the Western Balkans as a whole, are now moving more strongly into the focus of EU support measures

Cons: Ukraine war, energy prices and German economy are a burden

In recent years, the war in Ukraine has not only put a strain on the economies of many countries in Central and Eastern Europe, but has also made many international investors reluctant to invest in the region. One of the biggest economic challenges stems from the significant rise in energy prices following the complete or partial elimination of the previously favourable gas and oil imports from Russia. Virtually all economies in the region are net importers of energy or energy sources. The energy price situation has now eased noticeably, even though prices are currently still around twice as high as they were before 2022. At the same time, recent years have shown that the region's companies and economies have developed relatively unaffected by the situation in Ukraine.

The weak economic growth and recession in Germany had a greater impact on the economies of countries such as Austria, the Czech Republic, Slovakia and Hungary during this period. Some countries in the region export large quantities to the EU's largest economy and are therefore heavily dependent on the German economy.

However, not all countries in the region can be lumped together: In other countries such as Poland and Romania these risks are less significant due to a much stronger domestic economy and less dependence on exports. A precise analysis of the individual economies is therefore just as important as a detailed analysis of individual companies.

Investing in industries of the future

The restructuring of energy supply, transport and digitalisation as well as technological advances in many areas are at the top of the agendas of national governments and many EU funding programmes in Central and Eastern Europe. This opens good opportunities for forward-thinking companies and investors in the region. A settlement or at least a foreseeable end to the Ukraine conflict could bring the good long-term earnings prospects of the region's equity markets much more to the attention of international investors and lead to a reassessment of the risk/reward constellation.

In the first few weeks after US President Trump took office, there were some positive signals regarding a negotiated solution for Ukraine. The financial markets in Central and Eastern Europe initially reacted very positively to this. Optimism in this regard has recently waned again and equities in the region have lost some of their earlier gains, partly as a result. However, these market movements have already indicated that an end to the war in Ukraine could trigger a significant positive impulse, not only in the national economies but also on the financial markets.

We see Central and Eastern Europe as a region that is currently underrepresented and probably underestimated by international financial players and is waiting to be (re)discovered.

*In the area of work accidents, medium-sized companies favoured by us and generally rated as more attractive from a sustainability perspective perform less well than large oil companies such as Exxon Mobil and Chevron, which we avoid.


** In order to calculate the effect of sustainable equity investments in the fund, we used the sustainability ratios of the companies found in their sustainability reporting. CO2 emissions are generally denoted in tons of carbon dioxide equivalents (CO2e), work accidents in lost-time- injury-rate, waste in tons and water consumption in m3. The key ratios for the individual companies were multiplied by their weight in the fund or in the overall market, and the results of each key ratio were compared. Currently, we do not calculate such ratios for the bond segment of the funds, as we think that the "sustainable footprint" is attributable to the company owners, i.e. shareholders, not to the creditors, i.e. bond holders.

Conclusion

The Raiffeisen-Zentraleuropa-ESG-Aktien fund enables investors, who are aware of the risks of a regional equity investment and accept the risks associated with an equity investment, to participate in the economic development of Central Europe. The fund scores particularly well with two of Raiffeisen KAG's core competences: expertise in European emerging markets and sustainable, responsible investing.

The fund exhibits elevated volatility, meaning that unit prices can move significantly higher or lower in short periods of time, and it is not possible to rule out loss of capital.