UBS Equities-Global Strategy _EEMEA Compass CEE deep dive in six themes_...-117814381

ab18 September 2025Global ResearchGlobal StrategyEEMEA Compass: CEE deep dive in six themesFX & equities YTD outperformance; is EU growth optimism fully in the price?The CEE complex has been benefiting so far this year from three market themes: the German defence/infrastructure fiscal boost, the rise of the EUR as a "hard" currency, and PE expansion of EU banks. As a result, CE3 FX delivered excess spot returns of 7%-13% YTD vs the broader EM/USD; while outsized YTD excess returns in CE3 equities (26%-32% vs the EM MSCI) were not only FX driven. However, two offsetting macro factors are in motion: (1) a meaningful transatlantic rate convergence (UBSf 10y UST/Bunds spread narrowing to 40bps by YE26) is posing a challenge for CEE duration; (2) China's ever rising goods exports penetration and US tariffs are a clear threat to the manufacturing sector. What all this means for CEE FX, equites, rates and credit in the next 6m? In this edition of the EEMEA Compass we dive into six key regional topics: #1 Will CEE FX & equities outperformance continue?#2 Which bank stocks we like, and why#3 Where local rates are the most attractive?#4 Are markets too complacent on Poland's fiscal?#5 Is Poland ASW about to normalize?#6 How low EURHUF can fall?FX: Large macro offsets to German tailwinds; HUF has an edgeExpensive REERs, generally unexciting underlying BoP and EURUSD at the last phase of the rally (UBS calls for 1.23/1.18 in YE 2025/26) are a large offset to positive spillovers from German spending/imports. The forint is the exception, as it is uniquely backed by rising vol/adj. carry and sizable downside optionality in the form of large size of frozen EU funds (7.2%/GDP). We are long HUF via EURHUF 6m put spreads (385/375). Equities: Selectively long CEE banks (plus Greece) & Poland consumerYTD PE expansion and lack of meaningful direct sectoral exposure to German investments imply that CEE regional outperformance is at a mature stage. We do see, however, opportunities in key CEE banks where loan growth are underpriced - with Buy recommendations across PKO (Poland), OTP (Hungary) and Komercni (Czech), and the four main Greek banks which remain at a discount to European banks. Polish consumer stocks Dino Polska, Jeronimo Martins and Allegro are also a Buy as domestic demand looks set to remain solid in coming quarters. FI: UW POLAND in credit; rates to underperform in GBI-EM context Position for spread compression of Hungary & Romania vs Poland on diverging fiscal and rating paths after the Polish government"missed" an opportunity to consolidate in 2026, leaving debt/GDP ratio to rise towards the high-end of the BBB spectrum. POLAND/ROMANI EUR-denominated screens particularly wide (> 200bps at the 10y). In rates, Bunds yields rise (UBSf 3.00% for 10y in YE26) is a source of regional underperforms which is only partly offset by GBI-EM's max-country-weight rule change in 1H26. Intra-region, prefer HGBs over CZGBs where fiscal loosening is on t