Page 74 - bne_May 2021_20210501

74 Opinion
bounds and no such obviously wrong decisions were made,
as in some cases in Turkey.
On the one hand, investors in 2020 tended to concentrate their capital on the large and liquid markets and hardly played aggressive bets in individual asset classes and/or against individual countries. This is less the case in the current market environment of global excess liquidity, continued
high investment pressure and also a clearer top-down future macro picture.
And the global baseline scenario is currently certainly a challenging one for emerging markets, with debt at high levels, often without a backstop through almost unlimited national central bank balance sheets as in developed markets, and in an environment where US interest rates may rise further over the next 12-24 months.
And in emerging markets investing we always have to deal with event risks. A lot is currently happening in the "country triangle" of Russia, Ukraine and Turkey. The scale of the Russian troop deployment came as a surprise to many market observers, and this has further strengthened the "sanctions bubble" in Russia.
Russia more in "sanctions bubble"; Ukraine and primarily Turkey challenged in the medium term
Russian rouble and Ukrainian hryvnya in the spotlight
bne May 2021
Moreover, we see a substantial "sanctions premium" in the rouble of 10-15% compared to fundamental values. There should still be uncertainty here in Q2, but ultimately the downside risks should be limited.
Of course, Russia also has substantial backstops, even though we clearly believe that in the case of Russia all relevant actors are right in their thinking about their economic and geopolitical room for manoeuvre anyway. And we clearly
do not expect a full escalation in eastern Ukraine that is openly supported by Russia. And in both the case of Ukraine and Turkey, their economic and/or geopolitical room for manoeuvre is possibly overestimated.
Ukraine clearly belongs in the camp of vulnerable emerging markets. Investors are also still slightly over-positioned
here and locally we also see tendencies that the room for manoeuvre is partly overestimated. An IMF agreement continues to be delayed, and it looks as if the leadership wants to show their colours more in the conflict in eastern Ukraine.
But in Ukraine there is an important backstop: the central bank. It has distinguished itself as a credible and stability-oriented actor and is consistently pursuing this course. After the interest rate steps taken so far, we see the central bank as determined to follow suit here, in a base scenario and also in risk scenarios.
In addition, we see a certain geostrategic backing of Ukraine by the EU and the US, which could also result in new funds from relevant international financial institutions in order to avoid worst-case scenarios.
External deleveraging in Turkey will continue,
NBU is trying to get ahead of the curve
In the case of Russia, recent market swings after the Biden- Putin phone call announcement have also shown how quickly market sentiment can turn in the "sanctions bubble". In addition, in the case of Russia and Ukraine we see partly normal and tactical position rebalancing approaches in the foreground at the moment. In Turkey, we find it difficult to see a credible backstop, while at the same time there is a clear trend to constantly overestimate the economic-financial and geopolitical room for manoeuvre.
Therefore, in case of Turkey, we remain more sceptical in the medium and long term against the background of the experience in Russia and Ukraine in particular.
In these two countries, too, foreign economic actors have questioned their presence in the country in the past and in light of certain disillusionment, which can be clearly seen in the long-term cross-border bank financing of international credit institutions. In Ukraine, there was a long seven-year adjustment process of external deleveraging from 2008 to 2015, with a reduction of exposures by 80-90%. In Russia, we have seen an external deleveraging of international banks’ exposures from 2013 to 2015 in the range of 40-50%.
Source: Refinitiv, RBI/Raiffeisen Research
Even though the OFZ and the rouble have performed poorly in the short term and this could drag on into Q2, we remain positive here. Russia is currently more in a sort of "sanctions bubble". There is a lot of uncertainty about the possible scope of coming Western/US sanctions.
However, we do not think that market-destroying US/Western sanctions are imminent in the coming months if Russia
does not overstretch its geopolitical leeway. And Russia has achieved what it wants: The US is talking to Russia at eye level and it doesn't matter if a few "cosmetic sanctions" are added.
And by the way, the US also wants to find a certain geopolitical approach with Russia again, while maintaining the containment and sanctions policy. That sounds almost like a win-win relationship at first sight.
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