Ukraine has made great progress, but it must continue with the implementation of reforms to bring in foreign investment and increase liquidity in the market according to panelists at Ukrainian Financial Forum organised by ICU.
Speakers at the sixth annual Ukrainian Financial Forum lauded the improvement in overall Ukrainian macroeconomy boosted by investor confidence as seen by the increase of foreign holdings of Ukrainian debt and Ukrainian hryvnia as one of the best performing currencies this year. However, they caution that it is crucial to continue to accelerate the implementation of reforms to spur economic growth against the backdrop of a slowing world economy.
ICU, an independent asset management firm, private equity and investment advisory firm specialising in Central and Eastern Europe, gathered leaders from Ukraine’s political, financial and business worlds alongside international investors at the Ukrainian Financial Forum to discuss reforms and the local fixed income market. Speakers included Dr Gerard Lyons, leading international economist and co-author of ‘Clean Brexit’, Anne McElvoy, senior editor at the Economist, Sergiy Nikolaychuk, Deputy Minister from the Ministry of Economic Development, Trade and Agriculture of Ukraine and Yuriy Butsa, Government Commissioner for Public Debt Management Development of the Ukrainian public debt market.
Makar Paseniuk, Founding Partner at ICU, said:
“Favorable financial markets, investors’ positive perception of macroeconomic and political stability are now giving Ukraine good opportunities. Against the backdrop of the changing international trade landscape, the toolbox of growth stimulation measures and a relatively low base of GDP, the country is able to boost growth, strengthen its competitive position and occupy new market niches. However, to stimulate sustainable growth, the state needs to intensify its efforts to attract foreign direct investments”.
Konstantin Stetsenko, Founding Partner at ICU, commented:
“Ukraine’s robust economic fundamentals, prudent fiscal and monetary policies, high yields and the introduction of the Clearstream link have led to a 15x surge in foreign investors’ holdings of the government domestic bonds to nearly UAH100bn or $4bn this year. This shows that there is a great appetite for foreign investors to invest in Ukraine, but the pace of change and reforms need to accelerate to keep up with the momentum and interest. For this to happen, Ukraine needs to improve its market infrastructure, create a transparent pricing model and introduce a secondary market for it to compete with other emerging markets.”
Dr Gerard Lyons set the scene of the forum by stating that trade wars between the US and China, substantial monetary easing in these two countries has set the trend of declining interest rates in the world. Investors have sought to look for yields in emerging and frontier markets. Ukraine is one of the main beneficiaries of this trend according to Dr Lyons.
Sergiy Nikolaychuk, Deputy Minister from the Ministry of Economic Development, Trade and Agriculture of Ukraine reiterated that the government understands and is aware of the need to tackle widespread corruption, shortcomings in the legal framework in order to drive further investments into Ukraine and to further boost investor confidence.
On the day, leading experts shared their unique insights on the most pressing themes on reforms and local fixed income market in Ukraine through a series of panel discussions. Some of the key takeaways include:
Highlights from Yuriy Butsa, Government Commissioner for Public Debt Management Development of the Ukrainian public debt market:
- Key objectives include increasing share of local-currency denominated debt, attracting long-term concessional funding, smoothing debt repayment profile with extended average maturity and the development of systematic investor relations.
- In order to meet these objectives, the Ministry of Finance (MoF) highlighted that the domestic market development fosters the participation of international investors.
- MoF also plans to create a Eur-denominated Eurobond yield curve.
- The Commissioner acknowledged they strengthened investor relations and pro-actively conducted liability management transactions which helped Ukraine’s credit rating.
- Domestic bills are currently very attractive for foreign investors due to high rates, nominal and real. Real rates declined to 6.7% from 9.4% in March 2019.
- With domestic 5Y bond issuance surpassing the $1bn mark, Ukraine is in a position to negotiate its inclusion in the JPMorgan GBI-EM index.
- Starting from October 1, MoF will offer government bond auctions via the Bloomberg terminal. This will increase transparency and diversify the investor base.
On the development of secondary market & market infrastructure:
- The domestic bond market currently has low liquidity. For it to develop further, it crucial to enhance market infrastructure, create a transparent pricing model, and create a secondary market to increase liquidity.
- All the speakers agreed that secondary market trading on Bloomberg will have a positive impact on market development. This will have a significant impact to market transparency.
- Extending the cooperation with Clearstream will allow DVP settlements for non-residents and launch the corporate local bond market.
- Ukraine’s cooperation with Bloomberg will raise the market functionality to a new higher level with the launch of the Bloomberg Auction Systems platform for the primary market on 1 October and the launch of the EBND platform for the secondary market in the near future.
- For individuals, one of the most important infrastructure features is the development of the Bank ID system, which will significantly expand the geography of investing as it does not require physical verification of customers.
- The coming adoption of the law on derivatives is expected to revolutionize the financial market soon. Together with the future implementation of ISDA and GMRA standards, this will give the market new functionality, a new level of protection, and new services that will boost inflows from long-term portfolio investors.
The second series of the revamped Ukrainian Financial Forum focused on the local fixed income market was held in Kyiv, Ukraine on 27 September.
