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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

ILLUSIONS AGAINST COLLISIONS Hryvnia downfall still looks inevitable

13 November, 2012 - 00:00

A PLEASANT LULL

Ukrainian Interbank Monetary Market results show that the National Bank succeeded in fixing UAH/$ at the 2.1179 point practically without sustaining hard currency losses. Actually no dollar supply or demand from banks which set the week's stabilizing tune. Maybe now the NBU will show its hand, something that originally put everyone into shock: sharp devaluation of the hryvnia and raising the discount rate to 82%. Meanwhile it looks as though one can relax and try to lie in the scorching sun.

BONDS STEPPING DOWN, PROFITS GROWING

The government bonds market was all set to mark an important event, but Parliament voted down the President's edict lifting taxes off natural and legal entities operating in internal government bonds on the primary and secondary markets. One of the reasons cited in the edict was the use of bank credit resources not in the production sphere but to loan the state money. There is some logic here, but one finds it hard to believe that banks will rush over with loans for enterprises about to give up the ghost. On the contrary, market outflow is quite possible, precisely when the state is suffering from credit balance, with Hr 531 million worth of IGB sale/payment; sales remain too low (Hr 5-12 million), even with the NBU chipping in, and no one wants to invest in long-term issues and the number of those willing to try short-term ones (November 1998) is plummeting with yields dropping to 71.93% annual.

To date, market capitalization (i.e., indebtedness) amounts to Hr 9.3 billion (at par), and this with the Finance Ministry planning to make a series of heavy payments totaling Hr 1,044,200. In a word, the coming month promises to be a very hot one and there are reasons to expect short-term issues and growing yields.

GOSSIP CAN MOVE MOUNTAINS

Gossip (about an IMF loan) and repeating the Russian experience (unprecedented increase – up to 30% – of shares after a market fall forced the Street Stock Trade System index up to 8.8% last week. Trading volume set at Hr 13 million, considerably higher (almost twofold) than last week's. Operations, however, revealed a certain characteristic trend: IGB and compensation certificates made up over 80% of the turnover. The impression is that this market buildup is illusory, because it has no solid foundation. Vice President Gore's meeting with the Ukrainian leadership is not likely to secure the IMF loan in the next month. Which touches a nerve: Russia negotiated $22 billion and Ukraine a mere $2-2.7 billion, yet we are not sure about the outcome.

Incidentally, the Russian equity market dropped by 18% last week, because its previous climb was due to nothing but hearsay and the hard facts turned out very disheartening ($4.8 billion instead of $5.6 billion, and even this only thanks to Mr. Chubais). This implies a very unpleasant analogy, but this week may indicate fiasco for a number of market operators, and hryvnia decline could prove inevitable.

 

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