Impact of Russian Invasion

WIOF Central Asian Opportunities Fund
13.08.2008

The events in Georgia have had a limited direct impact on the performance of WIOF Central Asian Opportunities Fund, since the Fund has only one investment in Georgia – Bank of Georgia, while the rest of the Fund’s investments are primarily concentrated in Kazakhstan.
Bank of Georgia GDRs declined by about 25% as a result of escalation of the conflict; however, they rapidly gained back a part of the losses after the cease-fire was announced on Tuesday (Aug 12), and now are trading about 15% down from Aug 14 levels. We believe further downside risks for the Bank’s share price are limited, since at P/B of 0.8 a big part of the risks is already included in the Bank’s share price.
Another concern of investors in the region has been the stability of oil exports routes via the Caspian Sea region, as Caspian energy corridor is key for export of Caspian oil. However, Kazakhstan sends minimal volumes via this route (BTC pipeline); therefore, there was no impact on Kazakh stocks from these events. Moreover, good news is that no physical damage has been reported to the pipeline as a result of the attacks to Georgia.

WIOF Russian Opportunities Fund

Russia still remains the largest European consumer market with more than 80 mln. of active consumers. The macros are quite good – even inflation is trending down. Current account positive balance – 6% of GDP and it is planned to reach $85 bln. in 2008. Low external debt (33% of GDP), and International reserves ($500 bln.) exceed it by $50 bln. Share of delinquent loans is very low now. Internal debt is about 43% of GDP. But GDP is growing rapidly, as a result there is 1.5% of delinquent loans, and recent data does not show any increase of figure. The banking sector is growing. Corporate profitability remains well above the emerging markets average. We believe that fundamental value of Russian companies did not change significantly and we allow the thought that currently Russian equities might be attractive to invest in and the sell-off driven by recent events opens buying opportunities on this market.