(For other news from the Reuters Central European Investment
Summit, click on
http://www.reuters.com/summit/CentralEuropeanInvestment10)
* Hungary, Russia, Kazakhstan among strong overweights
* Little risk of capital controls in emerging Europe
LONDON, Oct 13 (Reuters) - JPMorgan Asset Management has
moved to an overweight position in central European debt due to
attractive valuations, macroeconomic stability and the absence
of excessive currency appreciation, the head of emerging market
debt at the fund manager said on Wednesday.
"We were heavily weighted towards Latam and Asia for pretty
much the whole of this year -- Asia was leading the recovery,
with Latam just behind. But it's well in the price now,"
Pierre-Yves Bareau said at the Reuters Central European Summit
via videolink in London.
"The situation on the macro side is stabilising now in
central Europe. We are well-paid to be there. Over the past two
months, we have shifted our portfolio back."
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Graphic on emerging Europe: http://r.reuters.com/kyk47p
Factbox on investment flows: []
Factbox on main risks in central Europe: []
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JPMorgan Asset Management has $16 billion under management
globally, up from around $10 billion a year ago, Bareau said,
reflecting the world's push towards high-yielding emerging
market debt, as developed markets stick to rock-bottom interest
rates.
The fund manager is overweight in Russia, Kazakhstan and
Hungary, and to a lesser extent in Latvia and Croatia, as it
seeks out less crowded trades. But Bareau said he thought other
major fund managers had not yet shifted positions towards
eastern Europe.
JPMorgan's global portfolio is divided into around 60
percent hard currency debt and 40 percent local currency.
"On the local debt side we like the region now. The main
bets will be Turkey, Hungary and Poland. It's more currency
investment than rate investment," Bareau said.
Turkey and Poland's currencies have been rising in recent
months, and a senior adviser at the European Bank of
Reconstruction and Development told the summit earlier on
Wednesday that these countries risked overheating.
[]
Hungary's forint has also risen as investors become more
comfortable with the political situation and the government's
determination to meet budget deficit targets, even without the
anchor of international aid.
Hungary will impose new taxes on industry sectors and
temporarily suspend payments to private pension funds to meet
its targets on budget deficit cuts, Prime Minister Viktor Orban
said on Wednesday. []
NO CONTROLS
Emerging Europe does not feature highly in JPMorgan's model
used to evaluate whether countries are likely to impose capital
controls, a positive for the region, Bareau said.
"Brazil was Number One on our scorecard, second was China,"
Bareau said.
"We don't expect Hungary to intervene, or to intervene in a
deep way. The Turkish lira is not a cheap currency but it
doesn't come up high. We don't think they'll intervene."
Governments in Latin America and Asia are trying to stem the
tide of potentially export-crimping investor flows to their bond
and currency markets.
Brazil last week doubled a tax on foreign inflows to its
local bond market, while the Bank of Thailand this week imposed
a similar tax.
There are some risks that Poland will not work hard enough
to tackle its deficit, but growth in the country remains strong,
Bareau said.
Some economists have accused Polish Prime Minister Donald
Tusk's centre-right government of complacency over a budget
deficit now expected to hit 7.9 percent of gross domestic
product this year under European Union accounting standards.
There is no need to accelerate fiscal reform much before or
after 2011 elections, a top adviser to Tusk told the summit.
"On the fiscal, inflation side we are bit worried. That's
why we are underweight on the rates," Bareau said.
"We like Poland on the FX side. When we look at the leading
indicators, Poland is the country in Europe that bodes the best
for the future. It has managed the drawdown very well. It's
doing very well on the way up."
(Reporting by Carolyn Cohn; Editing by Hugh Lawson)
