The focus of the Emerging Europe Fund investments lies in emerging markets of Central, East and Southeast Europe and the Commonwealth of Independent States. After the increase of overall proportion of equities in the portfolio of the Fund at the very beginning of the year to 95%, and after significant rally recorded by Russian, Turkish and Central European equity indexes, the equity exposure was reduced to less than 77% at the end of February. Emerging markets were initially the weakest player and in March showed a decline, though developed markets continued to grow, driven by the United States. Gradual loss of the growth momentum and the decline in the USA in April only deepened the correction in the region of Central and Eastern Europe and the Balkans. In the past month, the worst results were posted by Turkey which fell by more than 5.0%, stock exchanges in Central Europe without distinction wrote off over 2%, Russian MICEX nearly 3%, and also all markets in the Balkans were losing. Central European currencies weakened against the euro, with the exception of the Hungarian forint. Hungary benefited from improved sentiment in response to a change in the negotiations with the IMF. On the contrary, the dollar strengthened against the euro. Correction was used to increase the overall proportion of equities in the portfolio of the Fund in the second half of April by 10% by purchasing Central European and Russian equities. However in the event of increased risk aversion - for example due to unsatisfactory results of the elections in France or Greece – the exposure will be reduced again.

Price of oil in April was extremely stable. On the one hand, Brent blend crude oil decreased from 123 to 119 USD per barrel, on the other hand WTI light crude rose from 103 to 105 USD per barrel, which also reduced the spread between the two types of oil, which was at the beginning of the month at USD 20. Market with equities of oil and energy companies was primarily characterized by the earnings season. Oil giant Exxon Mobil in the first quarter showed the first decline in production since 2008 and failed to fully benefit from high oil prices. Net profit of the company dropped by 11 percent to USD 9.45 billion and fell behind expectations. By contrast, Chevron’s net profit in the first quarter increased by 4.2 percent to USD 6.47 billion (CZK 121.3 billion) thanks to higher oil prices. Overall, the results of companies were positively influenced by high oil prices on the one hand, while negative situation of unfavourable external economic environment was persistent, which deteriorated petrochemical margins. This month, Exxon announced a strategic partnership with the Russian state company Rosněfť. The agreement between these companies, allowing each other access to some of their oil supplies, is considered one of the most important that has ever been concluded in the oil extraction industry between an American and Russian company. The proportion of equities in the Fund fell by more than 2%, and is around 89% of the NAV.

In April, global stock markets of emerging countries declined by -1.5%. Since the beginning of this year, equities of the emerging markets accounted for profits at 11% YTD. In the first half of April we could see again an increased tension in the periphery of Europe, which was emphasized by a political risk arising from uncertainty associated with the presidential elections in France (22 April, with the second round on 6 May) and parliamentary elections in Greece (beginning of May). Not even macrodata brought sufficient support to markets this time. As in the past months, we could see featureless data coming from China. So there are still concerns in the markets, how this most important emerging market country will cope with the slowdown of its economy. In the stock markets in April, the worst results were posted by equities in Latin America with a decrease by 4.5%, followed by EMEA region (-3.2%) and Asia (-0.2%). Neither the equities in Central Europe in April managed to avoid losses. The PX index dropped by 3.5%, Hungarian BUX by 2.1% and Polish WIG20 ended with two percent decline. The Czech index, however, was influenced by the development of equities of Komerční banka, which is from mid-April traded without entitlement to a dividend, at CZK 160 per equity. The proportion of equities in the Fund during the month increased slightly and is around 93.5% of the NAV.

In April, investors realized profits. Stock market indexes at the beginning of the month headed into the red in response to the FED's hawkish tone. The optimistic view of the U.S. Central Bank also contrasted immediately with new data from the labour market with a lower growth of industrial orders. Also the ECB currently excluded a new wave of emergency measures, expecting the impact of the three-year LTRO on the economy. Also the debt crisis in Europe played its role - the results of the Spanish bond auction lagged behind expectations. The vulnerability of Spain in the present is illustrate by the data on the loans of the Spanish banks from the ECB, whose volume rose on a month-on-month basis to record more than EUR 300 billion. Two-week decline was replaced by a short growth correction, with better leading indicators in the USA and the IMF, which increased the estimated economic growth and secured more than EUR 300 billion from member states. However, the earnings season was the major contributor to improving sentiment, which mainly at the beginning of the month brought many surprises. However, the optimism quickly vanished, especially in Europe. The decline of PMI in the services in the EMU, Spain in recession and with reduced rating, unsuccessful auction of Italian bonds, worse economic data from the USA and China, the fall of the Dutch government or the presidential elections in France are on a list of events that made investors nervous. A broad U.S. S&P 500 index fell by 0.7% (YTD +11.2%) and technological NASDAQ 100 by 1.1% (YTD +19.6%). The STOXX Europe 600 lost 2.3% (YTD +5.2%) and narrower Euro STOXX 50 fell by 6.9% (YTD -0.4%).

During the past month, risky assets recorded a correction due to a combination of concerns from Spain, deteriorated macroeconomic situation in both the EU and the USA and also due to concerns about the election results in France and Greece. The influence of negative news on corporate bonds was faint and only temporary due to good corporate fundamentals. We used the correction on risky assets to slightly increase our bond portfolio, which included two groups of operations: 1) re-sales from shorter to longer emission of the same issuer (for example RSHB, Raspadskaya, Croatia and MOL bonds), 2) sale of bonds with low returns and / or shorter maturity (European Development Bank and Erste Bank), 3) purchases of bonds with longer duration (for example VEB Leasing, Renault). The average duration increased from 1.9 to 2.15 and the overall proportion of equities in the portfolio of the Fund from 87% to 88% of NAV. The Fund remains mainly in Russian corporate Eurobonds, which have decent fundamentals and in addition are also supported by high oil prices and foreign exchange reserves of Russia. The second largest component of the portfolio is represented by the region of Central and Eastern Europe, including both corporate and to a lesser extent also government bonds. On the month-on-month basis, the Fund increased by 0.5% (from beginning of the year +7.5%).

Events in commodity markets in recent weeks continued in featureless development. The vast majority of commodities is traded without any more significant trend and is oscillating, with low volatility. Another series of weaker data from China and repeated concerns about the global economy, that impacted mainly metals, had a negative impact. The decline in the price of European Brent crude oil was caused by the decreased tensions around Iran's nuclear program after a meeting held in Istanbul among the five permanent members of UN Security Council + Germany and Tehran, which expressed willingness to reopen the issue of uranium enrichment. The next round will take place in May in Baghdad. Traders with U.S. natural gas - once again – experienced extremely volatile development. After almost 20% decline in March, the gas during the initial three weeks lost for fear of excessive supplies of this commodity more than 10%, and briefly fell below the psychological level of USD 2, to return to nearly USD 2.30 at the end of April. While gold reacted positively to the end of jewellers’ strike in India, delays in implementation of other non-standard measures to provide liquidity and stimulate the economy in the Western world are still pushing the price of precious metals down. Month-on-month changes in DJ-UBS sub indexes for energy, agricultural commodities and industrial metals were minimal. The commodity indexes were pulled down mainly by precious metals, especially silver. Losses of composite indexes in April generally did not exceed 1% and differences between the indexes were in the order of tenths of a percent. The overall proportion of equities in the portfolio of the Fund on the month-on-month basis grew to 96%, allocation across segments remained almost unchanged.

As President Draghi promised in March, the ECB is waiting for impacts of their resolute measures and monetary easing into the real economy. Excess liquidity continues to push down revenues in the money markets. While in the first quarter three-month EURIBOR rate declined from 1.36% to 0.77%, in April it touched the limit of 0.70% and this trend has not stopped yet. Growing nervousness about the situation in Europe is evident, and investors will wait with concern for the results of the election in France and Greece and their implications. Revenues from short bonds remained rather stable on the month-on-month basis, so NAV / Share was slowly growing. During April, some interesting investment opportunities appeared occasionally, so the equity rotation of the Fund during the reported period was far above average. While the Fund remained fully invested and its average rating of BBB+ or duration (0.6 to 0.7 years) did not change, the composition of the bond portfolio underwent minor changes. We increased the exposure to Gazprom, Alfabank, Russian Agricultural Bank and Morgan Stanley, the names of Transneft and Sberbank were once again included, however the position in the Croatian Bank for Reconstruction and Development was reduced, and Citibank completely sold out. The proportion of state and quasi-state bonds and bonds with a state guarantee continues to represent more than half of the Fund’s assets.

In March, the Fund recorded a further growth (+1.1% on a month-on-month basis, YTD +7.0%) due to the ongoing optimism in financial markets. The growth of corporate bonds was driven mainly by Russian bonds with a non-investment rating and bank bonds from the USA and the EU, while CIS quasi-government Eurobonds with a longer maturity slightly corrected the previous increase. Credit yield spreads currently are at a relatively low level and a correction may occur for example in relation to the adverse effects of austerity measures that relate to GDP in the periphery of the Eurozone. Therefore, we decided to reduce the risk on the portfolio by selling bonds with a long maturity, so the overall proportion of equities in the portfolio of the Fund decreased to 86% of the NAV and the average duration to 1.95. The Fund remains primarily in Russian corporate Eurobonds, which have decent fundamentals and are also supported by high oil prices and foreign exchange reserves of Russia. The second largest component of the portfolio is represented by the region of Central and Eastern Europe, including both corporate and to a lesser extent also government bonds. Despite a slight increase in global default rates from 1.8% to 2.0%, the financial situation of companies continues to be good. A slight increase in default rates is expected in 2012, however to a level significantly lower than long-term averages.

The focus of the Emerging Europe Fund investments lies in emerging markets of Central, East and Southeast Europe and the Commonwealth of Independent States. After the increase of overall proportion of equities in the portfolio of the Fund at the very beginning of the year to 95%, and after significant rally recorded by Russian, Turkish and Central European equity indexes, the risk of technical corrections and collecting quick profits increased dramatically, and therefore the equity exposure was reduced to less than 77% at the end of February, which has remained unchanged. In March, emerging markets were the weakest player. Weak data from China raise the question whether the tightening monetary policy was not too radical or whether it did not come late. Major emerging markets experienced a slight correction, so there is no wonder that not even the region of Central and Eastern Europe and the Balkans did well under the influence of lagging Western Europe. Russia lost the most: -5.0% as measured by the MICEX index, then the Prague Stock Exchange with -3.8% and the Budapest Stock Exchange with -3.4%. CECE EUR Index of Central Europe fell by 3.1%. The development in the Balkans was again mixed. Croatian and especially Slovenian indexes were growing, stock exchanges in Sofia and Belgrade headed south. Czech crown as the only Central European currency strengthened slightly both against the dollar and against the euro. Polish zloty, Hungarian forint and Romanian leu lost on average about 1% against the euro.

Oil prices in March were exceptionally stable. Throughout the month they occupied a narrow range close to their highs this year. The price of North Sea Brent crude oil closed the month at USD 123 per barrel. Since the beginning of this year, the price of North Sea Brent crude oil has risen by almost 16 percent, primarily due to concerns about supply, particularly when facing the tension between Western countries and Iran. In addition, high oil price causes increasing concerns about the development of world economy. This was also one of the main reasons why in the past month France negotiated with the United States and Britain on a possible release of strategic oil reserves. According to sources of the French newspaper Le Monde, the release of oil reserves is just “a matter of weeks." On one hand, oil is now supported by geo-political tensions, particularly the threat of Iran, on the other hand, its price is pushed down by unfavourable outlook caused by the influence of the Eurozone debt crisis and economic slowdown in China, the biggest driver of growth in oil prices in the world. In April, the markets will, in addition to the usual variables, monitor the situation in peripheral countries of the Eurozone, macroeconomic data, and then attention will focus on the earnings season in the USA, which begins the second week in April. The proportion of shares in the Fund grew to 93% of the NAV.

Although the growth trend in global equities continued also in March, emerging market equities failed to be successful. In all, they wrote off 3.5% and the gap between equity returns in emerging markets and in the USA narrowed significantly in March. While at the end of February, the difference in their yields since the beginning of this year reached 9.2 percentage points, at the end of March it was only 1.7. This development, in addition to technical correction after a strong growth in previous months, was caused primarily by concerns about the rapid slow-down of the Chinese economy and by decreased level of positive surprises compared with the expectations of analysts and investors, which in previous weeks provided important impulses to equity markets. Within the emerging markets, the performance of the main regions was exceptionally balanced this time (Asia -3.2%, Latin America -3.5% and EMEA -4.4%). Similarly, the differences in the development of major national indexes in Central Europe were relatively small (Poland -1.3%, Hungary -3.4 and CR -3.8%). The Czech equity index was pulled down mainly by Erste Bank, which in March wrote off 10.4%. The proportion of equities in the Fund during the month was stagnating at 93% of the NAV.

The growth momentum in equities weakened significantly, risk assets recorded several attempts at a deeper correction and individual regions diverged in terms of performance. U.S equities and mainly technologies pulled up sharply by Apple equities continued in doing well. U.S. indexes were supported by good data from the labour market, growth in retail sales and a milder decline in industrial orders. In addition, stringent load tests helped banks and the outlook of the U.S. economy received encouraging comments from the FED chairman. Cross-correlations between sectors decreased to 0.5 and both the implied and realized volatility reached the lowest values over many years. Europe met the mandatory task: PSI in Greece took place according to the main scenario and also there was an increase in rescue funds - a necessary condition of the IMF for further assistance. The ECB will now wait what effect both three-year refinancing operations will bring. However, this is the last good news in the list. Even though Germany reported better industrial production, the entire EMU has experienced an even deeper decline than expected. The only positive news can be seen in the slowed-down penetration of this fall. The estimates of GDP in the Eurozone for 2011 4Q turned out as expected: -0.3%. Efforts to stabilize the debts to GDP through fiscal cuts actually threaten to spin the never-ending spiral of the further economic decline. The broad U.S. S&P 500 index gained 3.1% (YTD +12.0%) and technological NASDAQ Composite even 4.2% (YTD +18.7%). European STOXX 600 declined slightly by 0.4% (YTD +7.7%).

In March, the Fund recorded a further growth (+1.1% on a month-on-month basis, YTD +7.0%) due to the ongoing optimism in financial markets. The growth of corporate bonds was driven mainly by Russian bonds with a non-investment rating and bank bonds from the USA and the EU, while CIS quasi-government Eurobonds with a longer maturity slightly corrected the previous increase. Credit yield spreads currently are at a relatively low level and a correction may occur for example in relation to the adverse effects of austerity measures that relate to GDP in the periphery of the Eurozone. Therefore, we decided to reduce the risk on the portfolio by selling bonds with a long maturity, so the overall proportion of equities in the portfolio of the Fund decreased to 86% of the NAV and the average duration to 1.95. The Fund remains primarily in Russian corporate Eurobonds, which have decent fundamentals and are also supported by high oil prices and foreign exchange reserves of Russia. The second largest component of the portfolio is represented by the region of Central and Eastern Europe, including both corporate and to a lesser extent also government bonds. Despite a slight increase in global default rates from 1.8% to 2.0%, the financial situation of companies continues to be good. A slight increase in default rates is expected in 2012, however to a level significantly lower than long-term averages.

Events in commodity markets went hand in hand with a flat development in emerging markets. A series of weaker data came from China and significantly influenced the direction of the whole region. Lower GDP growth rate as well as worse industrial production still give rise to concerns that the economy may fail “to land”, which is also reflected in commodity markets where China plays a very important role. The worst results in March were posted by the energy segment, which fell by 7.2% and is the only segment in the negative figures since the beginning of this year. This was caused by the weakening of crude oil by almost 4%, as well as by a new wave of natural gas sales (-21.5%); compared with long-term averages, there are significant surpluses of natural gas in the tanks. This was caused by extraordinarily warm winter in the USA on the demand side, and by the technologies for extracting gas from shale on the supply side. In the event of a cooler summer there is a real danger that the current storage capacity will not be sufficient. Industrial metals corrected by more than 5%, and precious metals by 3%. Mainly silver and nickel did not report good results (decrease by more than 7%). Due to the rising prices of soya beans by almost 7%, the sub index of agricultural commodities scored a black zero. The development was influenced mainly by the unfavourable weather in Brazil. Corn, wheat and arabica slightly lost. Composite commodity indexes wrote off between 2.5% and 4%. The dollar slowed down its weakening in March to 0.1% against the euro. This currency risk, which devalues the dollar return on investments, is naturally always hedged. The overall proportion of equities in the portfolio of the Fund at the end of the month was around 94%. Approximately two fifths are allocated to the energy, one fourth to agricultural commodities, and one fifth to the precious metals.

ECB acted as a bank of last instance and by providing two three-year refinancing operations at more than EUR 1 trillion, the bank averted the threat of the credit crunch of the European financial system. Now, as the ECB says, they will wait for the impact of their vigorous actions on the real economy. Excess of liquidity and the calmed situation resulted not only in a sharp decline in government bond yields of the countries affected by the debt crisis, but also in a dramatic decline of rates in the interbank market. Of course, this does not mean that the crisis is finally over. The countries of the southern wing committed themselves to a number of fiscal cuts that will not be easy to fulfil with respect to the continuing contraction of the economy, and elections will take place in Greece in May. Bond yields continued in rather a slight decline on a month-on-month basis, however it is obvious that much of the risk premium has disappeared and the market is again focused primarily on fundamentals. Operations worth more than USD 6 million were carried out in March. Less profitable bonds of Transeft, ING, Goldman Sachs, General Electric and Gazprom bonds were replaced by more profitable bonds of the Bank of America, Russian Agricultural Bank, Alpha Bank, Vimpelcom, KazMunayGaz National and Croatian Bank for Reconstruction and Development, usually with a longer maturity in 2013. Government bonds and bonds with government guarantees currently make up for approximately half of the assets of the Fund, which remains fully invested. A significant part of the credit section is represented by quasi-government bonds. The average rating is BBB+ and duration exceeded 0.6 years. However, it still remains below its long-term average.