Countries

Frontier Europe Region - A Large Territory with High Potential

• The MSCI Frontier Markets Index Central & Eastern Europe & CIS covers the equity markets of Bulgaria, Croatia, Lithuania, Estonia, Kazakhstan, Romania, Slovenia, and Ukraine. The aim of the index is to exhaustively cover around 85% of the investable equity universe of each market
• We are initially focusing on Ukraine, Slovenia, Romania and Kazakhstan and Russia, given the numerous, profitable opportunities still evident in that proven stock market. Down the road, we may discover other, investible companies in the remaining markets in the Index.

Macroeconomic Statistics on the MSCI Frontier Markets Index Composites & Russia

	Population, million	Real GDP, 2000-2008 CAGR	Per Capita Income 2009	Net FDI per Capita 2000-2007
Bulgaria	7.5	5.6%	$5,920	$2,573
Croatia	4.4	4.2%	$13,910	$2,707
Kazakhstan	15.1	9.4%	$6,880	$1,404
Estonia	1.3	7.8%	$17,761	$8,083
Lithuania	3.3	6.9%	$10,770	$1,625
Romania	21.4	6.0%	$7,500	$1,382
Russia	141.2	7.0%	$8,870	$531
Serbia	7.4	5.5%	$5,740	$1,193
Slovenia	2.0	4.3%	$24,580	$2,315
Ukraine	46.0	6.8%	$2,540	$405
Total	249.6		$7,570	$821

Ukraine and Russia Continue Being Attractive Markets for Investment

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The sample group of the country's average P/Es makes the Ukrainian and the Russian companies attractive targets for investment.

A number of Russian publicly traded equities have P/E and P/S ratios that are the lowest among their peers. Combined with a number of fundamental factors, this makes Ukraine and Russia significantly undervalued, compared to other emerging and developed markets.

Ukraine: A Fertile Land for Investment

• Macro Fundamentals

  • Rapid economic rebound recently
  • Foreign exchange reserves of $25 billion. as of Jan 2010
  • Recent IMF $16.5 billion loan which secures fiscal and economic stability

• Drivers of Growth

  • GDP is only 70% of the 1991 level
  • Growth of local market: burgeoning middle class
  • Strong retail sector expansion potential
  • Large industrial base with highly educated, inexpensive labour force
  • Favorable geopolitical position — participation in the CIS and GUAM, the country's major role in the EU Eastern Partnership program
  • "Breadbasket of Europe" — Rich in fertile, productive land

• Key macro indexes

  • Population: 46 million.
  • Real GDP Growth, 2008: 11.6%
  • Real GDP Growth, 2009: -14.0%
  • Real GDP Growth, 2010F: 3.5%
  • GDP (nominal), 2009: $ 117 billion
  • per Capita Income: $ 2,535
  • Average Monthly Wage: $ 244

• Opportunities

  • Restructuring of the agricultural sector; increasing prominence of agribusiness
  • Undercapitalized enterprises with strong growth potential; low P/E and P/S multiples
  • Strengthening of commercial/political links with the EU
  • Increased transparency and business-friendly reform with the goal of EU accession
  • Potential for increased FDI from the Western companies

Russia: Big Is Beautiful

• Macro Fundamentals

  • Strong government support of the economy
  • Combination of resource driven exports and large domestic market
  • Central Banks reserves over $400 billion.
  • Current Account balance of 5.9% of GDP

• Drivers of Growth

  • Resource extraction primary, but not the only generator of growth
  • Expansion of the retail economy: rising wages, increased access to credit, large domestic market
  • Financial sector expansion
  • Highly-educated labor force

• Key macro indexes

  • Population: 141.3 million
  • Real GDP Growth, 2008: 5.6%
  • Real GDP Growth, 2009: -8.6%
  • Real GDP Growth, 2010F: 5.0%
  • GDP (nominal), 2009: $ 1,285 billion
  • per Capita Income: $ 9,095
  • Average Monthly Wage: $ 582

• Opportunities

  • Deepening of financial markets, the development of SMEs, the diversification of economic base, improved transparency and corporate governance

Romania: Fresh Blood In EU's Economy

• Macro Fundamentals

  • The National Bank of Romania's foreign exchange reserves stand at EUR 29.7 billion.
  • The exchange rate regime of the leu currently in place is that of a managed float, in line with using inflation targets as a nominal anchor for monetary policy and allowing for a flexible policy response to unpredicted shocks likely to affect the economy
  • Eurozone entry is planned for January 1, 2015
  • Current account deficit is financed via foreign direct investment

• Drivers of Growth

  • The European monetary union accession requirement, limiting budget deficit at 3% of GDP, imposes discipline on the public finances;
  • Significant IMF and EU balance of payments support
  • Low public sector debt level
  • High roll-over rates of banks' external financing

• Key macro indexes

  • Population 21.3 million
  • Real GDP Growth, 2008: 7.1%
  • Real GDP Growth, 2009: -7.0%
  • Real GDP Growth, 2010F : 0.4%
  • GDP (nominal), 2009: $ 166 billion
  • Per Capita Income: $ 7,772
  • Average Monthly Wage: $ 452

• Opportunities

  • Opportunities exist in the commercial banking and oil sectors
  • Most dynamic EU economy in terms of real GDP growth
  • Major current account correction and improved FDI. Balanced imports and exports in 2010

Slovenia: Precious Gem of The Balkans

• Macro Fundamentals

  • Euro was introduced on January 1, 2007
  • Per capita, it is the richest Slavic nation state, GDP per capita reaching $ 24,000
  • Low public debt level
  • Foreign debt essentially denominated in local currency

• Drivers of Growth

  • Slovenia is known for its macroeconomic stability
  • Sovereign credit rating stable on low public debt
  • Trade surplus

• Key macro indexes

  • Population 2 million.
  • Real GDP Growth, 2008: 3.5%
  • Real GDP Growth, 2009: -7.8%
  • Real GDP Growth, 2010F : 0.6%
  • GDP (nominal), 2009: $ 48 billion
  • Per Capita Income: $ 23,730
  • Average Monthly Wage: $ 1,989

• Opportunities

  • Export orientation can lever off any Euro zone recovery
  • High labour productivity compared to other Frontier Europe countries
  • Rapid development of financial sector

Kazakhstan: Looking for Gains from the Unified Economic Space

• Macro Fundamentals

  • Resource driven economic growth. Kazakhstan's territory is mineral and hydrocarbon rich 2.7 million square km
  • Currently Organization for Security and Co-operation in Europe Chair
  • Dynamic financial system
  • US dollar peg – base for monetary policy
  • Strong government support of the economy

• Drivers of Growth

  • Growth is driven by the macroeconomic balance, as well as the stimulation of the business activity
  • Low inflation rate
  • Issue of WTO entry, regulating multilateral trade and tariff arrangements, remains unresolved
  • Prices of natural resources, such as oil & gas, drive the GDP level

• Key macro indexes

  • Population 15.8 million.
  • Real GDP Growth, 2008: 3.3%
  • Real GDP Growth, 2009: -0.9%
  • Real GDP Growth, 2010F : 2.5%
  • GDP (nominal), 2009: $ 107 billion
  • Per Capita Income: $ 6,773
  • Average Monthly Wage: $ 454

• Opportunities

  • Resilient FDI driven by resource base
  • Large infrastructure and oil, gas projects in 2010/11
  • Opportunities exist in the commercial banking sector and oil sectors.