This document discusses government debt and fiscal deficits in Central and Eastern European (CEE) countries compared to other parts of Europe and the US. The key points are: 1) Public debt levels in CEE countries are generally lower than the Eurozone average, with most below 60% of GDP except for Hungary which is below the average at 77% of GDP. 2) Foreign ownership of government bonds is relatively low in CEE countries, around a quarter of debt on average compared to two thirds in Greece. 3) While budget consolidation is important, growth rates in the CEE region are above developed markets so deficits differ, with lower deficits where growth is higher.

1. ERSTE GROUP
CEE Equity Strategy
Henning Eßkuchen
Co-Head CEE Equity Research
Erste Group Research
Erste Group Research CEE Equity Strategy
CEE Equity 1

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Erste Group Research CEE Equity Strategy
CEE Equity 2

3. The debt crisis is a global crisis
ERSTE GROUP
Gross public debt and fiscal deficit per capita (EUR ths)
Bubblesize shows public debt per capita in EURths (2012e)
12,0
10,0 USA Ireland
Fiscal deficit to GDP (2012e)
UK AA+ BBB+ Japan
AAA Greece AA-
CCC
8,0
Spain
BBB+
6,0 NL Portugal
SK SI France
AAA BB
Denmark A A+ AA+
AAA
4,0 Austria Belgium
Romania AA+ AA
BB+ CZ AA- PL A-
Finland Italy
2,0 AAA
HU BB+
BBB+
Mastricht limit Germany
AAA Euro Area 2012E
Sweden
0,0 AAA
0 50 100 150 200 250
Public debt to GDP (2012e)
Source: Erste Group Research, European Commission, ratings by S&P
SD = Selective Default
Erste Group Research CEE Equity Strategy
CEE Equity 3

4. In terms of GDP, public debt is low and
well below the Eurozone average
ERSTE GROUP
Government debt (in % of GDP, 2012e)
0 50 100 150 200
All CEE countries except Hungary
Griechenland 7,3 161 have maintained their aggregate debt
Italien 1,9 124
Irland 8,3 116
below 60% of GDP
Portugal 4,7 114
USA 8,1 107 Hungarian debt is below the
Belgien 3,1 101 Eurozone average (2012e: 76% vs.
Eurozone 3,2 92
Vereinigtes Königreich 8 91
90% of GDP)
Frankreich 4,5 91
Deutschland 0,9 82 The share of government bonds held
Spanien 6,4 81 outside the respective countries* is
Ungarn 2,5 77
Österreich 3 74
relatively low in the CEE region
Niederlande 4,4 70 in CEE6, it accounts for about a quarter
Kroatien 4,5 67 of public debt, or 15% of GDP
Polen 3,5 56 Euro Area
Serbien 5,3 55 average (2012E)
In Greece, the share accounts for two
Slowenien 4,3 55 thirds of public debt, or 90% of GDP
Finnland 1 51
Slowakei 4,5 48 *2010 data
Tschechien 3,5 43 Debt (2012F, % of
Rumänien 3,4 34 Maastricht GDP)
Ukraine 2,5 30 limit Deficit (2012F, %
Bulgarien 1,9 18 of GDP)
Source: AMECO, IWF, Erste Group Research
Erste Group Research CEE Equity Strategy
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5. Consolidation is imperative - but not only in the
CEE countries ERSTE GROUP
Ranked by GDP growth (in % of GDP, 2012e)
Turkey 2,5
Poland 3,5
The growth rates in the region are
Slovakia 4,5
USA 8,1 clearly above those of the developed
Romania 3,4
Ukraine 2,5 GDP growth markets
Finland 1
Deficit (2012F, % of
Austria 3 GDP) The budget deficits differ widely among
Germany 0,9
Bulgaria 1,9 the CEE and Western European countries
France 4,5
UK 8
Ireland 8,3
Basically the budget deficit falls if the
Serbia 5,3 economy is growing. Countries with
Belgium 3,1
Eurozone 3,2 relatively high deficits (in relation to their
Hungary 2,5
growth rates) are still faced with an
Czech Republic 3,5
Spain 6,4 arduous consolidation process
Netherlands 4,4
Croatia 4,5
Slovenia 4,3
Italy 1,9
Portugal 4,7
Greece 7,3
-6 -4 -2 0 2 4 6 8 10
Sources: Eurostat, Ameco, Erste Group Research
Erste Group Research CEE Equity Strategy
CEE Equity 5

6. CEE market overview
CEE macro ERSTE GROUP
Weak sentiment and
IFO business cycle
uncertainty biting into real
economy
Economic recovery in the
clock
region postponed
Revision for CZ, HR and PL
– HU, RO downside risk –
SK revised up
PMIs mixed
Turkey and Poland remain
strongest in growth –
Real GDP grow th (y/y) 2010 2011f 2012f 2013f
better balance of export Croatia -1.2% n.a. -1.8% 1.0%
Czech Republic 2.6% 1.7% -0.8% 0.9%
and domestic demand.
GDP growth,
Hungary 1.3% 1.7% -0.5% 1.2%
Poland 3.8% 4.4% 2.6% 3.0%
Hungarian stimulus Romania -1.6% 2.5% 1.2% 2.9%
%y/y
positive – risk remains on Serbia 1.0% 1.6% 0.0% 2.0%
Slovakia 4.2% 3.3% 2.0% 2.0%
the funding side Turkey 8.9% 8.5% 3.5% 4.5%
Ukraine 4.2% 5.2% 1.0% 3.0%
Austria 2.3% 3.0% 0.9% 2.0%
Euroland 1.7% 1.5% -0.2% 1.1%
CEE8 average 2.4% 3.2% 1.1% 2.3%
CEE8+Turkey 4.7% 5.0% 1.9% 3.1%
Source: IFO, Erste Group Research
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7. CEE market overview
Driving forces – Sentiment/ZEW ERSTE GROUP
Previous increases in Eurozone - ZEW current situation
100.0 Eurozone - ZEW economic expectations
ZEW – Eurozone vs.
sentiment wiped out again 80.0 CEE - ZEW current situation
CEE - ZEW economic expectations
60.0
In particular expectations 40.0
decreased again 20.0
CEE
0.0
CEE still seen better than -20.0
-40.0
Eurozone in absolute terms -60.0
-80.0
Inflation seen heading -100.0
south -120.0
5/31/2007
9/30/2007
1/31/2008
5/31/2008
9/30/2008
1/31/2009
5/31/2009
9/30/2009
1/31/2010
5/31/2010
9/30/2010
1/31/2011
5/31/2011
9/30/2011
1/31/2012
5/31/2012
Appreciation trend for
regional currencies
20.0
Stock market expectations
current vs expectations
10.0
revised downwards
0.0
-10.0
-20.0
-30.0
ZEW/Erste –
-40.0
-50.0
Nov-11
Jul-11
Jan-12
Jun-12
Aug-11
Sep-11
Oct-11
Dec-11
Feb-12
Mar-12
Apr-12
May-12
Current eco. situation Economic expectations
Source: Bloomberg, ZEW
Erste Group Research CEE Equity Strategy
CEE Equity 7

8. CEE market overview
Inflation, rates and currencies ERSTE GROUP
Oil price adds to weak
CPI (eoy) 2010 2011f 2012f 2013f
domestic demand – inflation Croatia 1.8% 2.1% 4.2% 2.8%
Czech Republic 2.3% 2.4% 3.1% 1.2%
currently no concern Hungary 4.7% 4.0% 5.2% 3.4%
Inflation
Poland 3.1% 4.7% 3.0% 2.6%
Paves the way for rather Romania 8.0% 3.1% 3.7% 3.5%
dovish stance of regional Serbia
Slovakia
10.3%
1.3%
7.0%
4.4%
7.6%
3.5%
4.5%
3.0%
central banks Turkey 6.4% 10.4% 8.0% 6.5%
Ukraine 9.2% 4.6% 4.5% 14.0%
The Czech National Bank has Austria 1.7% 3.6% 2.4% 1.9%
Euroland 1.6% 2.7% 2.1% 1.6%
already cut rates to all-time CEE8 average 4.4% 4.0% 3.7% 3.9%
low (0.50%) CEE8+Turkey 5.1% 6.2% 5.2% 4.8%
PLN and HUF remain the most
volatile currencies in CEE
Hungary moved closer to the Currency/EUR (average) 2010 2011f 2012f 2013f
kick-off of formal talks with Currencies Croatia 7.3 7.4 7.6 7.5
Czech Republic 25.3 24.6 25.1 24.3
the IMF - HUF rallied 6% (vs. Hungary 275.4 279.2 295.0 279.0
euro since the beginning of Poland
Romania
4.0
4.2
4.1
4.2
4.3
4.4
4.0
4.4
June) Serbia 103.1 102.0 114.0 115.0
Turkey 2.0 2.3 2.3 2.3
RON is traded in a narrow Ukraine 10.5 11.1 10.8 13.1
range due to the CB
interventions
Source: Erste Group Research
Erste Group Research CEE Equity Strategy
CEE Equity 8

9. CEE market overview
Deficits and imbalances ERSTE GROUP
C/A deficit – consumption 2010 2011f 2012f 2013f
2.0%
C/A deficit (%of GDP)
an ambiguous argument
0.0%
Turkey the usual suspect –
energy driven, consumption -2.0%
part declining -4.0%
Ukraine shows strong
-6.0%
increases of household
consumption (4Q11 75% in -8.0%
GDP) -10.0%
Serbia high, but improving Serbia Turkey Ukraine CEE8 average
-12.0%
FDI
2010 2011f 2012f 2013f
Consolidation efforts show
Fiscal deficit (% of GDP
0.0%
effect on fiscal deficit -1.0%
Turkey increasing due to -2.0%
lower growth -3.0%
HR, SR, SK to be above 4% -4.0%
in 2012 -5.0%
PL, HU to be below 3% in -6.0%
2012 -7.0%
Poland Romania CEE8 average
Romania is to slightly -8.0%
overshoot its deficit target for -9.0%
this year due to elections
Source: national statistics, Erste Group Research
Erste Group Research CEE Equity Strategy
CEE Equity 9

10. CEE market overview
Deleveraging ERSTE GROUP
Banks in EURO-periphery
were in the center of cross- Change in foreign liabilities of banks
border deleveraging (Mar-2012 vs Mar-2011 as % of GDP2011)
The low level of public debt
29
put CEE economies at
lower risk compared to
5.1
many highly-leveraged euro
area economies 5.2
No substantial outflow of -46.9
20 9.1 -0.3
foreign funding in CEE -13.5 8.2
banks 0.7
-1.6
1.9
Hungary is an outlier in -8.4 -1.6
-5.8
-0.6
-6.7 1.3
CEE due to unorthodox
-1.8
policy measures resulted in -5.7
a reduction of Hungarian -14.5
-6.3
1.8
-12.5
banks’ balance sheets
Legend
less than -2
between -2 and 0
between 0 and 2
more than 2
Source: ECB, Erste Group Research
Erste Group Research CEE Equity Strategy
CEE Equity 10

11. CEE market overview
Driving forces – Liquidity ERSTE GROUP
emerging market equity
USD mn
Fund flows – dedicated
25,000
Until March inflows added
20,000
up to USD 25bn
15,000
April/May wiped out USD 10,000
funds
9.6bn by redemptions for 5,000
all dedicated emerging 0
market equity funds -5,000
-10,000
Global emerging market
01/31/12
02/29/12
03/31/12
04/30/12
05/31/12
06/30/12
07/31/12
08/31/12
09/30/12
10/31/12
11/30/12
12/31/12
ytd
equity funds holding up
Global Emerging Markets Asia ex-Japan
best Latin America EMEA
Pacific All dedicated Emerging Market
Stock exchange turnover
Stock exchange turnover
20%
still down by some 30% y/y 11% 11% 9%
10% 4% 6%
M/m some moderate 2% 4% 2%
0%
increases (CEE 8: +16%) 0%
-10%
-20%
-19%
-30% -26%
-33%-34%-34%
-40%
-50%
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
CEE 8 Deutsche Börse NYSE Euronext Turkey
Source: Emerging Portfolio Research FESE
Erste Group Research CEE Equity Strategy
CEE Equity 11

12. CEE market overview
Driving forces – Growth ERSTE GROUP
0
Earnings revisions CEE
Growth remains the key
concern -50
Revision rates started to -100
bite into earnings outlook
-150
Earnings growth for 2012 at
-200
mere 7.8% (EUR)
2012 2013 2014
In particular 2013 and 2014 -250
Sep-11
Nov-11
Feb-12
May-12
Aug-11
Dec-11
Jan-12
Mar-12
Apr-12
Jun-11
Jul-11
Oct-11
Jun-12
estimates are being revised
down
Potential turning point Earnings revision 2012 (rhs) Earnings revision 2013 (rhs)
Forward P/E (lhs) Earnings growth (lhs, %)
identified early 2012 did not 25 50
work.
Turning point missed
0
20
1
2
0
11
11
1
00
00
11
11
12
12
-1
r-1
r-1
-1
g-
c-
n-
n-
n-
n-
b-
b-
ec
ct
-50
Ap
Ap
De
Au
Fe
Fe
Ja
Ja
Ju
Ju
O
D
15
-100
10
-150
5
-200
0 -250
Source: Factset, Erste Group Research
Erste Group Research CEE Equity Strategy
CEE Equity 12

13. CEE market overview
Driving forces – Valuation ERSTE GROUP
Valuations are still 17.0
comfortably below
12M forward P/E
15.0
historical levels 13.0
Relative to weaker growth 11.0
Average 11.6
outlook, however, valuation 9.0
argument looses some 7.0
8.9
appeal 5.0
11/30/2000
11/30/2001
11/30/2002
11/30/2003
11/30/2004
11/30/2005
11/30/2006
11/30/2007
11/30/2008
11/30/2009
11/30/2010
11/30/2011
1.2
1.1
Valuation vs growth,
1.0
0.9
12M forward 0.8
0.7
0.6
0.5
0.4
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Source: Factset, Erste Group Research
Erste Group Research CEE Equity Strategy
CEE Equity 13

14. CEE market overview
Driving forces – Risk aversion ERSTE GROUP
Apart from fundamental
Spread – CLI to stock
75.0 OECD - Europe OECD Eastern Europe Major Five Asia
market performance
outlook just any lasting 55.0
change in sentiment is still 35.0
able to provide decent 15.0
performance -5.0
-25.0
Equity market performance
-45.0
is still significantly below of -65.0
what economic outlook
ar 7
M 008
M 009
M 011
M 011
N 008
N 009
N 010
N 011
Ju 08
Ju 09
Ju 10
Ju 11
2
00
01
0
0
0
0
would justify
-2
-2
-2
-2
-2
l- 2
l- 2
l- 2
l- 2
-2
-2
-2
-2
-2
ov
ov
ov
ov
ov
ar
ar
ar
ar
M
N
Equity risk premia are
elevated again, reaching 10.0 2,500
670bps vs average of 9.0
8.0 2,000
Equity risk premia
350bps 7.0
6.0 1,500
5.0
4.0 1,000
3.0
2.0 500
1.0
0.0 0
2/28/2002
10/31/200
6/30/2003
2/29/2004
10/31/200
6/30/2005
2/28/2006
10/31/200
6/30/2007
2/29/2008
10/31/200
6/30/2009
2/28/2010
10/31/201
6/30/2011
2/29/2012
Average Earnings yield - 10yr Gov Historical average NTX
OECD stopped providing a sample for Eastern Europe, figures shown are averaged
numbers based on individual countries Source: OECD, Bloomberg, Factset
Erste Group Research CEE Equity Strategy
CEE Equity 14

15. CEE market overview
Relative view – markets ERSTE GROUP
discount to implied fair
Suffering from high risk 70.0
60.0
Relative view incl.
Bubble size
aversion Romania, but also
EPS growth (forward, 12M, %)
PX
indicates discount to
50.0
Austria stand out 40.0
implied fair value
ATX
Regional outperformer
value
30.0
Turkey should still have 20.0 Bux Turkey
10.0
most potential Romania
Croatia
0.0
Growth outlook remains -10.0
Poland
WIG 20 broad
distorted by some base -20.0
5.0 6.0 7.0 8.0 9.0 10.0 11.0
effects. P/E (foreward, 12M)
70
Bubble size indicates
60
EPS growth (forward, 12M, %)
ytd performance in PX
50 EUR
40
Relative view incl.
ytd performance
30 ATX
20 BUX Turkey
10 Romania Slovenia
0
Russia Croatia Poland
-10 WIG 20
-20
-30
4.5 5.5 6.5 7.5 8.5 9.5 10.5
P/E (forward, 12M)
Source: Factset, Erste Group Research
Erste Group Research CEE Equity Strategy
CEE Equity 15

16. CEE market overview
Allocation proposal CEE Equity 3Q 2012 ERSTE GROUP
10.00 %
8.00
Turkey – remains best 6.00
choice for growth,
Expected returns
4.00
concerns on C/A easing 2.00
0.00
Poland – growth, size -2.00
-4.00
Austria – regional play, -6.00
but dependent on banks -8.00
RO&BG
CEE
SEE
Austria
Turkey
Russia
Ukraine
Poland
CEE / Hungary – recovery
from low base, political Profitability Growth Valuation Momentum & analyst view Risk Size
risk,Czech Republic –
stable, defensive, Underweight Neutral Overweight
Slovenia – liquidity
Allocation proposal Austria
SEE – liquidity CEE
RO & BG – transactions Poland
delayed RO & BG
Russia – whatever Russia
happens to the oil price SEE
Turkey
Ukraine
Source: Erste Group Research
Erste Group Research CEE Equity Strategy
CEE Equity 16

17. CEE market overview
Relative view – sectors ERSTE GROUP
40
Turkey contributes strongly Jun-12 May-12
Earnings revision rates by
30
to any sector performance 20
10
Despite concerns on
sector – 2012e
0
growth cyclicals ahead -10
Basic resources remain -20
-30
most fragile in terms of
Construction & Materials
Personal & Household Goods
Healthcare
Travel & Tourism
Banks
Technology
Industrial Goods & Services
Insurance
Real Estate
Media
Automobiles & Parts
Food & Beverages
Chemicals
Basic Resources
Oil & Gas
Utilities
Telecom
Retail
growth recovery
Food and beverage suffers
from its SEE listings
(liquidity)
120.0
Automobiles receive their Valuation, growth and
Bubble size indicates ytd
performance in EUR
100.0
push equally from Turkey Real Estate
Forward EPS growth (12M)
ytd performance 80.0
and Poland 60.0
Healthcare
Construction to earlier yet 40.0 Insurance Technology
Personal
20.0 Banks Construction Industrial Retail
Healthcare as defensive Telecom
Utilities
0.0 Autos Chemicals Food Oil
anchor Basic
-20.0
Resources
-40.0
-60.0
-1 4 9 14 19
Forward P/E (12M)
Source: Factset, Erste Group Research
Erste Group Research CEE Equity Strategy
CEE Equity 17

18. CEE market overview
Top picks ERSTE GROUP
Austria Poland Turkey Central Europe* SEE & Other**
Banks + Raiffeisen Bank Int. + Isbank
+ Yapi Kredi
+ Halkbank
Basic resources / + Semperit + Bogdanka + Pegas
Chemicals + RHI
+ voestalpine
+ Lenzing ( ) - KGHM
Construction /
Constr. materials
Real estate / + Im m ofinanz + Torunlar REIT + Fondul Propr.
Holdings + CA IMMO + Em lak Konut REIT
Health care + Selcuk + Richter Gedeon + Krka
+ Egis
Industrial goods + Polytec + Tofas
& services / Autos + Dogus Otomotive (new )
- Ford Otosan
Insurance + Vienna Ins. Group + PZU
- UNIQA
Oil & gas + OMV + Aygaz + MOL + Petrom
+ Tupras - PKN
- Unipetrol
Personal goods / + Turkish Airlines + Fortuna ( )
Food / Travel
Retail / Wholesale + Migros Ticaret
- BIM
Telcos & Technology + Kapsch TrafficCom + TPSA + Turkcell
Utilities / Media + Cyfrow y Polsat + CEZ + Transgaz
+ Transelectrica
* Czech Republic, Hungary, ** Romania, Ukraine, Blue: Top 10 Pick , Red: Expected underperformers Source: Erste Group Research
Erste Group Research CEE Equity Strategy
CEE Equity 18

19. CEE market overview
Conclusions ERSTE GROUP
Macro • Uncertainty biting into real economy, recovery delayed
Risk aversion and • Sentiment went sour again, equity risk premia almost
sentiment at all-time highs
Fundamentals • Growth outlook deteriorated, makes valuation a bit
less an argument
Sectors and companies • Selective focus on financials and cyclicals
Markets •Turkey and Poland ahead, Russia depending on oil
price. CEE driven by Hungary, SEE waiting for liquidity.
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CEE Equity 19

20. Appendix
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