1 Why invest in Eastern Europe? Sven Kunsing Head of Eastern European Investment Management.

1

Why invest in Eastern Europe?

Sven KunsingHead of Eastern European

Investment Management

2

After all these years…Do we still find reasons to invest in Eastern Europe?

SEB Growth Fund performance since 1999 (in EUR)

Emerging Markets, MSCI, Eastern Europe Index, Close, USD [perf %]

Source: EcoWin, Bloomberg

Dec

99 00

Aug Dec

01

Apr Aug Dec

02

Apr Aug Dec

03

Apr Aug Dec

04

Apr Aug Dec

05

Apr Aug Dec

06

Apr Aug Dec

07

Apr Aug

Per

cent

-50

0

50

100

150

200

250

300

SEB Growth Fund (Bloomberg: UHIKASV ET) is an Estonian domiciled Eastern European equity fund managed by SEB EE Equity Team

3

Important starting point

New Europe vs Russia (CIS)

Convergence

European Union policies

Service oriented sectors

Subcontracting

Small economies

Energy

Other resources

Heavy industries

Emerging consumers

Puzzling politics

4

CompetitivenessHourly labour costs in industry and services

Minimum, maximum

and median levels in EUR

Source: EuroStat

5

CompetitivenessAverage weekly working hours

37.2

40.2

30

32

34

36

38

40

42

Old EU average New EU average

1Q07

+8.1%

Source: EuroStat

6

CompetitivenessTax competition (tax revenues as % of GDP)

41,8

34,2

25

30

35

40

45

50

55

LT

LV

SK IE EE

CE

E8

MT

CY

PL

CZ

ES

UK

PT

EL

HU

NL SI

EU

25

DE

EU

15

LU IT AT FI

FR

BE

DK

SE

Source: EuroStat

7

Result: Strong GDP growth

11.4%11.9%

7.5%

3.9%

6.1%

8.3%

5.2%

7.7%

6.1% 6.1%

4.8%

5.7%

3.0%

8.0%

9.7%

8.0%

5.6%

2.3%

6.5%

8.7%

4.3%

6.7%6.1%

4.9% 4.8%

5.9%

2.9%

7.0%

8.2%

6.5%

5.0%

2.8%

5.5%

7.2%

4.0%

6.3% 6.2% 5.9%

4.5%5.3%

2.7%

6.5%

7.8%

6.0%

4.7%

3.0%

5.0%

6.8%6.4%

0%

2%

4%

6%

8%

10%

12%

14%

Estonia

Latv

ia

Lithu

ania

Czech

Hunga

ry

Poland

Slovak

ia

Sloven

ia

Roman

ia

Bulgar

ia

Turke

y

Croat

ia

Serbia

EU 27

2006 2007E 2008E 2009E

Source: EcoWin, European Commission Spring 2007 Forecast, SEB Nordic Outlook August 2007

8

Convergence5 year gov’t spreads to EUR

Czech Hungary Poland

Source: Reuters EcoWin

01 02 03 04 05 06 07

-1

0

1

2

3

4

5

6

7

8

9

Poland

Czech

Hungary

9

ConvergenceFX rates in CEE3

Spot Rates, Close

Estonia, EUR/EEK [perf %]

Lithuania, EUR/LTL [perf %]

Latvia, EUR/LVL [perf %]

Hungary, EUR/HUF [perf %]

Poland, EUR/PLN [perf %]

Czech Republic, EUR/CZK [perf %]

Source: Reuters EcoWin

96 97 98 99 00 01 02 03 04 05 06 07

Perc

ent

-40

-30

-20

-10

0

10

20

30

40

50

60

70

1010

Bumpy road to Monetary UnionInflation LT

interest rate

Fiscal balance

% of GDP 06

Public debt

% of GDP 06

Currency

Currency regime Expected EMU entry

(optimistic scenario)

Maastricht reference

3,0* 6,4* -3,0 60,0 Smooth participation in ERM II for 2 years

Estonia 4,7 n/a, but ok +3,8 4,1 Kroon ERM II 2011

Latvia 7,0 4,5 +0,4 10,0 Lat ERM II 2012

Lithuania 4,2 4,2 -0,3 18,2 Litas ERM II 2011

Poland 1,6 5,3 -3,9 47,8 Zloty Float 2012

Hungary 6,2 7,1 -9,2 66,0 Forint Target zone(EUR) 2013

Czech 1,9 3,9 -2,9 30,4 Koruna Managed float (EUR) 2012

Slovenia 2,6 4,0 -1,4 27,8 Tolar ERM II Already in!

Slovakia 3,5 4,5 -3,4 30,7 Koruna ERM II 2009

Bulgaria 6,2 4,3 +3,3 22,8 Lev Currency board (EUR) 2016

Croatia 2,6 4,2 -2,3 42,1 Kuna Managed float (EUR) 2018

Romania 5,2 7,5 -1,9 12,4 Leu Managed float (EUR) 2017

Serbia 8,3 n/a 1,6 34,9 Dinar Free-float 2020?

Turkey 10,1 17,5 0,4 60,7 Lira Fee-float 2025?

*Referring to the period April 06 to March 07 Source: ECB Convergence report May 07

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Economic growthBack to the future – you have already seen this 25 years ago

GDP per capita (in SEK)

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

TIME: Estonia 1993 - 2027E

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

TIME: Nordics 1950 - 2005A

Estonia GDP/capita, SEK

Sweden GDP/capita, SEK

Finland GDP/capita, SEK

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Why invest in Russia?

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Emerging middle class

Strong natural resource base

Fast GDP growth

Imminent WTO accession

Ongoing economic reforms

Top 5 reasons

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Russia: while huge, it’s still so small…

2004 GDP, current prices bnUSD

583 578

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

2004Russia Netherlands

2004 GDP/capita, PPP USD

10200

19000

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

20.000

2004Russia Portugal

2004 GDP, PPP bnUSD

1449

1620

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

2004Russia Italy

Source: IMF WEO Database, April 2005

15

Russia: … but catching up

GDP per capita (in PPP $ terms)

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Russia (LHS)

New EU members (LHS)

Russia as % of new EUmembers (RHS)

Source: IMF WEO Database, April 2005

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Strong GDP growth

10.0%

5.1%4.7%

7.2%6.4% 6.7%

7.5%7.0%

6.5%

4.4%

3.2%

4.1% 4.2%

5.4%6.1%

5.5%4.8%

4.4% 4.2%4.0% 3.7%

0.9% 0.8%

1.7% 1.5%

2.9% 2.6% 2.4% 2.1%

7.3%

0%

2%

4%

6%

8%

10%

12%

2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E

Russia CEE3, avg EurozoneSource: EcoWin, SEB

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Russian growthNot so production-driven…

Retail sales / industrial production growth

Retail sales growth Industrial production growth [c.o.p 12 months]

Source: Reuters EcoWin

Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May

03 04 05 06 07

Per

cent

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

18

Russia: Macroeconomic developments

GDP growth +7.5%

Inflation 8.7% (second year in single digits)

Investment growth +17%

Real disposable income +14%

Trade surplus 115bn USD (9.4% of GDP)

Federal budget balance 4% of GDP

Early prepayment of Paris Club debt (now ext public debt/GDP ca 4%,

one of lowest among all EM)

Macroeconomic success continues in 2007

19

Russia: strength all over

Low public debt

Strong reserves

Strong current account

Strong fiscal balance

20

And after all these years…We still keep on beating the index

SEB Growth Fund performance since 1999 (in EUR)

SEB Growth Fund [perf %] Emerging Markets, MSCI, Eastern Europe Index, Close, USD [perf %]

Source: EcoWin, Bloomberg

Dec

99 00

Aug Dec

01

Apr Aug Dec

02

Apr Aug Dec

03

Apr Aug Dec

04

Apr Aug Dec

05

Apr Aug Dec

06

Apr Aug Dec

07

Apr Aug

Per

cent

-100

0

100

200

300

400

500

600

SEB Growth Fund (Bloomberg: UHIKASV ET) is an Estonian domiciled Eastern European equity fund managed by SEB EE Equity Team

21

Thank you!

Sven Kunsing

Head of Eastern European Investment Management

[email protected]

+372 6656 645