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2.2 Ukrainian bonds rally on election results
Bond traders were pleased with the outcomes of both the firs round of the Ukrainian presidential election and the Turkish local elections at the weekend with their respective Eurobonds rallying on the results.
“Ukraine and Turkish Eurobonds benefit from the elections outcome. Ironically Ukrainian Eurobond market cherished the outcome predictability with Mr Poroshenko and Mr Zelenskiy going into the second round of presidential polls, while markets took a positive note of Mrs Tymoshenko’s failure,” Raiffeisen Bank (RZB) analyst Gintaras Shlizhyus said in a note.
“We continue to believe that Ukraine’s risk is priced excessively, which implies more spread compression after 21 April’s presidential polls with either candidate likely suiting the markets,” Shlizhyus added.
Appealing to bond holders will be important as Ukraine has a debt mountain to climb this year: it has pay off, or refinance, $15bn of bonds maturing in 2019 and $21bn in 2020. Goldman Sachs estimate in a note that Ukraine could double its average Eurobond issue of recent years to as much as $6bn in 2019 and as foreign investors become increasingly active on the domestic bond market the Ministry of Finance could raise another $2bn in dollar-denominated local issues. Access to the market should be improved this year when the Ukrainian capital markets get hooked up to international settlement and clearing system Clearstream.
It seems that foreign sentiment to Ukraine in particularly is improving despite the economy’s weak recovery. Ukraine saw a net inflow of capital of $6.6bn in 2018, according to the Institute of International Finance (IIF), while its erstwhile rival Russia saw outflows of over $75bn. And IIF is forecasting that Ukraine will receive another $5.8bn of net capital inflows this year.
“We find Ukraine still at least 100bp cheap to EM peers though the prolonged election uncertainty with October parliamentary polls may prevent spreads from falling too fast,” Shlizhyus said. “In Turkey AKP losing some important towns in municipal elections last Sunday was mildly positive news for the market, so prices inched higher too. We believe that a defeat of President Erdogan’s AKP party in a few major towns may trigger positive policy re- adjustments though a risk of “heavy hand” approach still remains intact. Therefore any rally on TR Eurobond market may be short-lived unless we see more positive changes in the coming weeks.”
2.3 Washington backs Russia in WTO trade dispute with Ukraine
Russia and the United States rarely agree on anything in global politics. But Washington was the only World Trade Organization (WTO) member that supported Moscow in a highly politicised legal dispute at the organisation’s dispute settlement body that many have a systemic impact on the whole international trading system.
The WTO’s panellists were asked to judge on restrictions Russia imposed on transit of goods on their way to Kazakhstan and Kyrgyzstan following the 2014 Ukrainian crisis. The case has become a proxy for a larger-than-life trade dispute that is making its way through the machinery in Geneva: there are similar cases brought by thirteen countries against US steel tariffs introduced last year on national security grounds. The Russian decision may directly
8 UKRAINE Country Report May 2019 www.intellinews.com