It was a very difficult quarter and start to the year for Eastern European equities and one dominated by events in Ukraine and the subsequent annexation of Crimea, the net result of which caused Russian equities to sell off aggressively during the quarter. We also witnessed a sell-off in the ruble, but it is now trading at higher levels than before the crisis in Crimea. Despite international outrage at the events, they were actually popular within Russia and Putin’s approval rating is near its all-time high. Our base case is that we see a ‘lumpy’ de-escalation from here, and that while Russia will try to continue to put pressure on Ukraine to accept greater autonomy for the regions, it does not want to create a similar situation in east Ukraine as in Crimea.
In Turkey, we kept a close eye on political events over the past quarter as the battle between Erdogan and the Gulen faction in the AKP has remained heated during the run up to the municipal elections and clearly this has remained a source of concern for investors in Turkey. However, in the municipal elections at quarter end, the AKP continued to win strong support and we now expect that the politicalrisk that investors had been factoring in will diminish.
