COBA CEE Strategy Weekly

We remain sanguine on the CEE-4 local currency markets seeing them as
offering good high carry investment opportunity at current levels.

The
interest rate cutting cycle throughout the region is bond supportive, but
decreasing interest rate differentials with the euro would make local
currencies more volatile. We see Poland as most attractive in the currency
and interest rate terms.

* Hungary: we remain positive on the interest rates and mainly on the
short-, mid-part of the curve on liquidity and sizeable T-bond/bill
redemptions in April/May (HUF 280bn 05/G). Convergence flows will likely
abstain and we expect the HUF in a range.
* Poland: the CEE carry trades are likely to remain directed to
Poland, with positive interest rate outlook and fundamental (BoP)
underpinning for the currency. We keep long position in mid-duration (5Y).
* Czech Republic: we recommend to buy the currency, expecting support
from the upcoming privatisation deals, even though the bond market should
remain under pressure due to political instability
* Slovakia: we keep our Overweight recommendation in expectation of
SKK recovery and good economic fundamentals