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
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.
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.
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).
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
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.
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.
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.
A perfect storm seems to be brewing for the Russian rouble. It has tumbled to four-year lows against a euro-dollar basket. Against the dollar, it has lost around 7 percent so far this year, faring better than many other emerging currencies. But signs are that next year will bring more turmoil.
While oil prices, the mainstay of Russia’s economy, are holding up, Russian growth is not. It is running at 1.3 percent so far this year and capital outflows continue unabated — $48 billion is estimated to have fled the country in the first nine months of 2013 compared with $55 billion in 2012. Russia’s mighty current account surplus has shrunk to barely nothing and could fall into deficit by the middle of next year, reckons Alfa Bank economist Natalia Orlova. Finally, the rouble can no longer count on the central bank for wholehearted day-to-day support. FX market interventions cost the bank $3.5 billion last month but it also shifted the exchange-rate corridor upwards six times, indicating it is keen to move to a fully flexible currency.
By Shadi Bushra
Yet another sign of the growth convergence between developed and emerging markets. Two of the “BRIC’ countries have dropped out of the Top-30 in a growth index compiled by political risk consultancy Maplecroft, while several Western powerhouses have nudged their way onto the list.
Maplecroft’s 2014 Growth Opportunities Atlas showed that Brazil and Russia — the B and R of the BRIC bloc — had dropped 26 and 41 places, respectively – due to slow economic reforms and diversification. The United States, Australia and Germany meanwhile broke into the top 30 on the index, which evaluates 173 countries on their growth prospects over the next 20 years.