Jupiter adds New Europe Fund to Global SICAV

The Jupiter New Europe Fund, which is aimed at professional investors, is part of the Luxembourg-domiciled Jupiter Global Fund SICAV and is available to investors in Austria, Finland, France, Germany, Jersey, Sweden and the UK.

The launch of the Fund coincides with the anniversary of the Jupiter Emerging Europe Select Fund (SICAV), which was launched on 2 November 2006. In the past year, this Fund, which is now closed, has returned 36.8% against 34.61% for its benchmark – the MSCI EM Europe 10/40 Index.

Elena Shaftan , head of Jupiter's emerging European team, is bullish on the prospects for the region, particularly Russia. She said: "Russia and central European markets have underperformed other emerging markets this year as foreign fund flows have favoured markets such as China and Brazil. This has resulted in significant undervaluation for these markets relative to their peers. Russia, for example, has a growth profile similar to that of China and profitability similar to that of Latin America yet the market is trading on 10 times 2008 earnings – a 60% discount to China.

But, the reasons for this underperformance have melted away in recent weeks. Investors had been concerned about the impact of forthcoming elections in Russia and tense relations with the West. However, we are now starting to see some clarity on the political outlook, with Putin indicating that he was likely to stay on in some capacity following the presidential elections in March. This provides investors with greater certainty that political stability will be maintained.

"In addition, concerns about the impact of weaker relations with the West have been overplayed. Russia is not reliant on external investment – it has strong economic growth which is being driven by domestic demand and investment spending, a current account surplus and budget surpluses and a public debt level of just 8% of GDP compared with 70% in the US. Furthermore, 70% of the turnover of the Russian stock market is accounted for by domestic funds, making it more resilient to political noise and global investor risk appetite.

"Concerns that economy is vulnerable to a sharp decline in the oil price have also been exaggerated – not that this currently looks a likely scenario. At current high oil prices, the Russian central bank is amassing some $700m a week into its reserves, giving it significant flexibility to inject liquidity into the economy if necessary."

Shaftan also points out that corporate Russia is in good shape. She said: "Average debt to equity ratio among Russian companies is 18%, compared with 51% in the US and companies are twice as profitable as their US counterparts with Return on Equity to the tune of 20%, making them good borrowers even in the current difficult credit environment. Corporate earnings in Russia have been substantially better than expected at the beginning of the year. Steel companies, for example, have reported 50% growth in earnings during the first half of the year while mobile telecoms have reported 70%. This, together with the fact that we are reaching the end of a significant IPO pipeline, which absorbed about $30bn of liquidity year to date, makes Russian equities look very attractive."

Markets in Central Europe also look promising, with companies benefiting from EU convergence. Ingrid Kukuljan, who co-manages the Fund, said: "European Union structural funding, strong consumer activity, low taxes and cheap labour are all driving growth in Central Europe, resulting in healthy corporate earnings. Poland, in particular, is experiencing rapid consumer and investment led growth against a backdrop of moderate inflation and a balanced fiscal position. Meanwhile, second quarter GDP growth of 6% suggests strong momentum in CzechRepublic, and in Hungary recent interest rate cuts indicate economic fundamentals are improving ."