Eastern European Markets
October, 6. 2005

Trigon Funds: Croatia and Poland in Focus

In September the Central and Eastern European equity markets continued to rally on the back of sustained strength in energy prices and an improved sentiment in global equities. The biggest gains were once again in the energy sector while Poland rallied strongly ahead and after the parliamentary elections and focus returned to Croatia when EU decided to open accession talks with Croatia.

The NAV of the unit of Trigon Central and Eastern European Fund increased by 5.6%, Trigon Second Wave Fund by 8.0% and Trigon New Europe Small Cap Fund by 1.3% in September. Year-to-date the funds have returned 29.7%, 26.7% and 4.6% (launched in May) respectively.

Top-down and bottom-up Poland remains our favourite market. For the first time after Polish re-independence, after the elections in September, Poland will be having centre-right government whose main aim is to reform the country and to lower taxes, especially the currently progressive personal income tax (up to 40%). Poland, which has been witnessing nearly 20% unemployment between 2001-2004, is finally seeing decrease in unemployement to below 18% accompanied by further decreases in local interest rates (from 19% in 2001 to 4,5% at present) and finally picking up investment cycle (+6,6% 2005e and +15% 2006e). Compared to other EU new member states Polish household debt/GDP has been stagnant for the past four years. We expect Poland due to factors mentioned above to join the Baltics and Hungary in their domestic demand and consumer spending driven growth which will mainly be based on leveraging up Polish households.

We continue to favour Polish and Croatian stock markets due to their undervaluation compared to other regional equity markets. Therefore nearly 40% of our CEE Fund and majority of our Small Cap Fund are invested in Poland, and more than half of the Second Wave Fund into Croatia. During the past two years international investment community has focused on Central European blue-chip stocks, mainly large banks and energy, and therefore the valuation in these stocks is demanding. Regional small and mid-cap companies have bearly done anything over the past 18 months, and therefore our funds are increasing positions in undervalued, unresearched and unpopular stocks. We continue to find, mainly in Poland and Croatia, small and mid-cap companies trading at single digit P/E multiple, showing double digit underlying growth, having strong local market share and high quality management.

We recommend investors with medium risk targets to invest 65% of their emerging Europe assets to Trigon CEE Fund, 15% to Trigon Second Wave Fund and 20% to Trigon New Europe Small Cap Fund. Investors with high risk appetite could hold 50:20:30 proportions in their portfolios. Further information on our funds is available at

Should you have any questions, please let me know.

For further information:
Kristel Kivinurm-Priisalm
Director, Head of Asset Management
Trigon Capital
Pärnu Road 15
10141, Tallinn, Estonia
Tel. +372 6679208
Fax. +372 6679201
Mob. +372 5112242

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