Investment strategy Correspondent
Sujata's Feed
Dec 13, 2013
via Global Investing

Russia’s people problem

President Vladimir Putin is generally fond of blaming the West for the ills besetting Russia. This week though, he admitted in his State of the Nation speech that the roots of Russia’s sluggish economy may lie at home rather than abroad.¬† The government expects the economy to expand a measly 1.4 percent this year (less than half of the growth the US is likely to see) and long-term growth estimates have been trimmed to 2.5 percent a year.

Much of that is down to the lack of reform which has left many big companies in the state’s (generally wasteful) hands, weak rule of law that deters investment and capital flight to the tune of tens of billions of dollars a year. Yet there is another factor that could be harder to fix — Russia’s poor demographic profile. The population started declining sharply in the early 1990s amid political and economic turmoil,¬†falling by 3.4 million in the 2000-2010 decade, according to census data. The impact is set to be felt sharply from now on, exactly when children born in 1990s would have started entering the workforce.

Dec 13, 2013

Ukraine’s currency hits four-year low as weekend protests near

LONDON, Dec 13 (Reuters) – Ukraine’s hryvnia slipped to new
four-year lows on Friday while depreciation bets on the currency
intensified on expectation that the near-bankrupt country will
hurtle into crisis without a speedy aid infusion.

Across other emerging markets, currencies came under
pressure against the dollar ahead of next week’s meeting of the
U.S. Federal Reserve which some expect will signal the start of
the stimulus wind-down.

Dec 12, 2013

Ukraine tests Templeton star Hasenstab’s contrarian style

LONDON, Dec 12 (Reuters) – The bet paid off in Ireland and
it paid off in Hungary but star bond investor Michael
Hasenstab’s faith in distressed countries honouring their
sovereign debts faces an even bigger test in Ukraine.

For the moment at least the fate of a $5 billion-plus punt
on Ukraine government debt by the Franklin Templeton manager
does not look promising. Political tensions are roiling Ukraine;
less than $20 billion stand between it and a huge
devaluation-cum-default combo.

Dec 11, 2013

Ukraine debt insurance costs move back towards four-year high

LONDON (Reuters) – The cost of insuring Ukraine’s debt against default rose on Wednesday towards recent four-year highs and sovereign bonds fell after Ukrainian riot police moved against anti-government protesters overnight.

Police withdrew on Wednesday morning. President Viktor Yanukovich has faced weeks of demonstrations over his decision to ditch a trade deal with the European Union and strengthen Ukraine’s ties with Russia.

Dec 9, 2013
via Global Investing

Banks cannot ease Ukraine’s reserve pain

The latest data from Ukraine shows its hard currency reserves fell $2 billion over November to $18.9 billion. That’s perilously low by any measure. (Check out this graphic showing how poorly Ukraine’s reserve adequacy ratios compare with other emerging markets: http://link.reuters.com/quq25v)

Central banks often have tricks to temporarily boost reserves, or at least, to give the impression that they are doing so. Turkey, for instance, allows commercial banks to keep some of their lira reserve requirements in hard currency and gold. Others may get friendly foreign central banks to deposit some cash. Yet another ploy is to issue T-bills in hard currency to mop up banks’ cash holdings. But it may be hard for Ukraine to do any of this says Exotix economist Gabriel Sterne, who has compared the Ukraine national bank’s plight with that of Egypt.

Dec 5, 2013
via Global Investing

The hryvnia is all right

The fate of Ukraine’s hryvnia currency hangs by a thread. Will that thread break?

The hryvnia’s crawling peg has so far held as the central bank has dipped steadily into its reserves to support it. But the reserves are dwindling and political unrest is growing. Forwards markets are therefore betting on quite a sizeable depreciation¬† (See graphic below from brokerage Exotix).

Dec 5, 2013

Ukraine corporate bonds hit by fear of devaluation, capital curbs

LONDON, Dec 5 (Reuters) – Dollar bonds issued by Ukrainian
companies back in the easy-money times are taking a hit on
doubts over the country’s solvency and fears that a currency
devaluation or capital curbs might propel firms into default.

Mass protests against the government’s decision to spurn a
cooperation deal with the European Union in favour of closer
ties with Russia are inflicting more damage on an economy
already in recession. And unless external aid
materialises, the central bank, with just $20 billion in hard
currency reserves, may struggle to hold the hryvnia’s peg to the
dollar.

Dec 4, 2013

Ukraine reserves perilously low; lag other emerging markets

LONDON (Reuters) – As the political crisis in Ukraine continues, its severely depleted central bank reserves are putting it at serious risk of a balance-of-payments crunch, its metrics looking worse than almost every big emerging economy.

With demonstrators blockading government buildings in protest at President Viktor Yanukovich’s rejection of closer ties with the European Union, the creaking economy is coming under growing pressure.

Dec 2, 2013

Analysis: Emerging markets seek savers at home as foreign money drains away

LONDON (Reuters) – As a decade’s worth of easy foreign money starts to ebb away from emerging economies, their governments are renewing efforts to deepen domestic savings pools – even if change is painfully slow.

The volatility prompted by signs of an eventual turn in U.S. monetary policy has not only underscored emerging markets’ reliance on foreign capital, but also sounded a fresh warning: that without a significant home-grown investor base, countries risk a return to the old boom-bust cycles of the 20th century.

Dec 2, 2013

Emerging markets seek savers at home as foreign money drains away

LONDON, Dec 2 (Reuters) – As a decade’s worth of easy
foreign money starts to ebb away from emerging economies, their
governments are renewing efforts to deepen domestic savings
pools – even if change is painfully slow.

The volatility prompted by signs of an eventual turn in U.S.
monetary policy has not only underscored emerging markets’
reliance on foreign capital, but also sounded a fresh warning:
that without a significant home-grown investor base, countries
risk a return to the old boom-bust cycles of the 20th century.