Positives and negatives look finally balanced
CEE was the key underperformer in EMEA YTD, but as the positive and negative
equity drivers balance out, we see no reason for this to be sustained from now on.
On the positive side, we note 1) seemingly realistic earnings expectations, 2)
upgrades already outweighing downgrades, and 3) very strong local liquidity. The
major negatives include 1) valuations, which are already mean-reverted in most
cases and 2) still very low visibility for 2010.
We see limited upside in heavyweight sectors
From a bottom-up perspective, any broad market rally is nearly impossible without
sound performance from either Banks or Energy/Materials. While we are neutral
on Banks (balanced risk/reward), we are negative on Energy/Materials (industry
headwinds). Among other sectors (accounting for only 30% of the free float of our
universe), we highlight positively Property (still depressed valuations) and
Pharmaceuticals (attractive valuations and sound performance) and recommend
being cautious on late cyclical Media, Consumer and Construction.
Pecking order by country: Czech Republic, Hungary, Poland
Our country preferences remain unchanged, with the Czech Republic and Poland
being our most and least preferred markets, respectively. In the Czech Republic we
like the mixture of attractive valuations, defensiveness, and exposure to regional
growth opportunities. Our aversion to Poland stems from unappealing valuations
and our cautious view on corporate banks, Materials/Energy and late-cyclicals.
Focus list: 9 Buys and 10 Sells
Our Buy list includes the three most resilient banks (PKO BP, Komercni Banka,
OTP), defensive plays (CEZ, Egis) and selective still attractive growth stories (CME,
GTC). The list of Sells is dominated by Energy/Material names (PKN, Lotos, KGHM,
NWR) and corporate Polish banks (Pekao, BRE).

Table of Contents
Executive summary ........................................................................... 4
Strategy outlook................................................................................ 6
Focus list .......................................................................................... 12
Macro outlook.................................................................................. 14
Banks ................................................................................................ 18
Materials & Energy.......................................................................... 26
Pharmaceuticals .............................................................................. 37
Consumer ......................................................................................... 38
Media................................................................................................ 42
Real estate........................................................................................ 44
Construction .................................................................................... 46
Chemicals ......................................................................................... 48
Telecoms .......................................................................................... 52
RTN Pages ........................................................................................ 55