Ukraine to grow in 2010?
Monday, January 4th, 2010It seems that the technical indicators are suggesting that some investment instruments may see an increase in values. Indeed, Ukraine may have been oversold and with elections this month, there could be a positive re-evaluation of growth prospects.
By Denis Maternovsky
Jan. 4 (Bloomberg) — Ukrainian Eurobonds may surge early this year as investor concerns the country faces potential default are “overstated,” according to Renaissance Capital.
The CHART OF THE DAY shows Ukraine’s bonds due in 2012 yield more than notes maturing four years later, suggesting investors are speculating that the nation will struggle to pay its debts in the next couple of years.
The securities may deliver gains of more than 15 percent in the first quarter as a “positive shift in investor attitudes” drives a recovery in values, Renaissance analysts led by Alexei Moisseev in Moscow wrote in a research note.
The cost to insure against nonpayment by Ukraine using credit-default swaps is higher than for any other government. Ukraine default swaps have dropped to 1,241 basis points from a record 5,384 basis points in March. The country is reliant on a $16.4 billion International Monetary Fund bailout amid the worst recession in a decade, while political battles between President Viktor Yushchenko and Prime Minister Yulia Timoshenko ahead of presidential elections next month limit the government’s ability to tackle the economic crisis.
The economy is likely to return to growth in 2010, justifying “aggressive purchases” of the country’s sovereign and quasi-sovereign debt, said Moisseev in the note dated Dec. 24. There’s “no chance” of the political situation being made any worse by the presidential election, he said.
Ukraine dollar bonds due in 2012 yield 1,200 basis points more than two-year U.S. Treasuries, compared with an average spread of 330 basis points before the global credit crisis began in 2007, according to Renaissance data. A decline in spreads to “fair” levels of 550 basis points would trigger a price jump to full face value from 85.9 cents on the dollar on the 2012 bonds today, according to Renaissance. City of Kiev dollar bonds could gain as much as 20.5 percentage points, the report said.
