The global emerging market environment remains bifurcated, with a clear distinction between regions benefiting from structural alignment with developed markets and those more exposed to geopolitical or commodity-driven shocks. Outside of the AI-driven equity segment, continue to face volatility stemming from geopolitical developments, shifting trade dynamics, and uneven capital flows.

Within this context, Emerging Europe has, in our view, been relatively resilient versus some other emerging market regions, reflecting factors such as integration with Western Europe, access to EU funding mechanisms, and competitive labor cost structures. These factors may support foreign direct investment and financial market participation over time. Geopolitical developments and commodity-price movements can, however, affect regional equity markets; for example, elevated tensions in the Middle East have contributed to volatility in global commodity markets, which has weighed on some commodity-sensitive economies.

From a market perspective, there is continued focus on markets and companies that may benefit from structural tailwinds such as , EU convergence, and technology linked export demand, while geopolitical and valuation related risks remain relevant.

Emerging Europe appears, in our view, to be in comparatively good shape versus some other emerging market regions outside of segments that have benefited materially from AI-related equity enthusiasm. Exposure to Western European economic cycles, combined with ongoing inflows, may support medium-term growth prospects. The region is also viewed by some market participants as a nearshoring destination (i.e., relocating production or services closer to end markets), supported in part by labor cost dynamics.

That said, regional equity markets were negatively affected during the last quarter by escalating geopolitical tensions, particularly through commodity price volatility. Countries with higher exposure to energy and raw material dynamics, including Turkey, experienced increased equity market pressure.

Turkey

Markets may remain volatile in the near term, reflecting inflation dynamics, monetary policy uncertainty, currency movements, and geopolitical developments. Valuations can become more or less attractive as prices move; however, lower prices do not necessarily indicate reduced risk. There may be opportunities in companies where fundamentals are less dependent on domestic macro conditions, while recognizing that country and currency risks can still affect returns.

One example is export oriented companies where revenues are generated primarily outside the domestic economy, including firms that may be linked to global technology investment cycles through their customer base or end markets. Performance of individual securities and sectors can differ significantly from local indices and may change quickly; any references to themes are illustrative and are not a guarantee of future results.

Poland

Poland continues to offer a fundamentally solid macro and corporate backdrop. However, the relative attractiveness has moderated. Financial investment activity is expected to slow, largely due to a less compelling valuation environment and increasing competition from higher-upside opportunities in other regional markets, notably Turkey.

In the short term, the elevated interest rate environment should remain supportive for Polish banks, as net interest margins are likely to prove more stable than previously anticipated. Over the medium term, however, political risks are rising. There is a growing probability that higher corporate sector taxation may be required to finance populist policy measures as the political debate intensifies ahead of elections expected later in 2027. This could dampen corporate investment appetite, while consumers may temporarily benefit from government incentives or political promises.

Czech Republic

From a relative perspective, risk‑reward appears less attractive given the availability of strong alternatives elsewhere in Emerging Europe.

Hungary

The market is viewed as offering potential opportunities, particularly in scenarios where post-election policy direction supports improved investor sentiment. Political and policy outcomes, however, can be difficult to predict, and market repricing may not occur as anticipated.

The post-election environment may share some similarities with prior periods in the region when changes in government were followed by discussions regarding EU funding. Any potential release, timing, or magnitude of EU fund disbursements is uncertain and depends on negotiations and compliance with EU requirements. These developments, if they occur, could influence individual companies and broader market sentiment, but outcomes are not assured.

The principal risk remains geopolitical. Hungary’s high dependency on Russian oil and gas supplies leaves it vulnerable to potential retaliation from Russia, especially given the previous government’s close relationship with Russian leadership. While a complete deterioration in relations is not the base case, increasing EU alignment may elevate risks over time. For now, expectation are that the new government will avoid fully antagonizing Russia to safeguard critical energy supplies.