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Regional Fixed Income Market Watch November 2020

3 Dec, 2020

• November turned out to be a good month for regional fixed income securities. After lifting global equity markets, positive vaccine news improved investors’ risk sentiments and increased interest towards Emerging Markets (EMs), including CIS and Eastern Europe. According to Institute of International Finance’s (IIF) recent report, non-resident portfolio flows were strong to EMs in October-November, with debt inflows in EMs at US$ 36.7bn in November after US$ 11.7bn of inflows in October. 
• The ECB published its Financial Stability Review, mentioning that the euro area faces “a fragile and uneven recovery” amid continued pandemic. It also mentions that a low interest rate environment, particularly in the developed countries, incentivizes investors to shift to riskier assets to generate higher returns. According to the report despite increasing corporate vulnerabilities (deteriorated credit quality and increasing number companies with negative rating outlooks) credit spreads have reached pre-pandemic levels for almost all companies with the rating higher than “B” (in the BB rating category November yields remain slightly above the levels found in February). However, according to the ECB credit spreads appear “tight” considering the near-term economic outlook, particularly for the high-yield issuers. 
• The first week of November has seen a shake-up in Turkey’s governing economic bloc. First, President Recep Tayyip Erdogan fired the country’s central bank governor, while later Erdogan’s son-in-law resigned as Turkey’s finance minister. Erdogan appointed a UK-educated former finance minister Naci Agbal as a central bank governor. The news was welcomed by the investors, with Lira experiencing its biggest one-day rise in two years on the following day. On the first monetary policy meeting chaired by the new governor, the CBT raised interest rates by 4.75ppts to 15%, the biggest hike in 2 years. Immediately, after the news Lira further strengthened by 3%. 
• Despite high criticism and low investor confidence about unconventional economic policies Turkey managed to outperform all G20 peers by posting 6.7% y/y growth in 3Q20 in expanse of depreciated Lira and double digit inflation. Speed of recovery was mainly driven by fiscal stimulus package (12.8% of GDP) and government pushed bank lending (+41.5% y/y in 3Q20). This was also supported by non-orthodox monetary policy actions keeping interest rates low while inflation was skyrocketing due to weakened Lira. 
• On the back of investor optimism, most of the regional currencies strengthened in November. Turkish Lira was the clear winner, with the currency appreciating by 6.2% in November, followed by Russia’s rubble, which strengthened by 3.9% in the same period. BYN of Belarus and Kazakh tenge also gained, up 1.7% in November. GEL and Armenian dram were the only regional currencies that depreciated in November. 
• Among regional Eurobonds, BELARUS 23 was the clear winner of the month, with the yield dropping by 221bps to almost 6-month low of 5.2%. Notably, Belarusian leader Alexander Lukashenko hinted that he would step down as a president once the new constitution is adopted, the day after the visit from a Russian ally Sergei Lavrov. Notably, it’s been one month after the imposition of sanctions by the EU and US against Belarusian officials. TURKEY 21 was the close follower, with the yield dropping by 183bps to 2.7%, level last seen in June 2020. Ukraine 21 also performed strongly, with the yield down by 132bps in November. Yields on Azeri and Armenian Eurobonds dropped by 105bps and 110bps, respectively. Yields on other regional Eurobonds also declined in November in the range of 18-77bps. 
• Among Georgian placements, GOGC 21 was the best performer, with the yield down by 200bps, followed by BOG 23, which was down 98bps in the same period. Other Georgian Eurobonds also gained in November, with the yields dropping in the range of 25bps-63bps. 
Please see the full report for detailed coverage of the fixed income markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, Ukraine, Russia, Turkey, Uzbekistan.

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Georgia enters 2nd lockdown and government announces fresh stimulus program

26 Nov, 2020

Today, the Government of Georgia has decided to tighten and extend the existing COVID restrictions from November 28 through January 31 in the country taking into account the current epidemic situation. Government also announced fresh support program for affected businesses and households in the amount of GEL 1.1bn including tax exemptions, unemployment benefits, subsidies for utilities and loan interest payments, etc. The restrictions also include nationwide curfew from 21:00 until 05:00 for 2 months and will be only lifted on the New Year’s and Christmas nights. The strictest first phase will last until December 24 and within this phase city and intercity public transportation will be banned, and shopping malls, restaurants and cafes, will also be closed, except for delivery service. No restrictions will apply to the work of all type of construction activities, banking and finance institutions, groceries, pharmacies and hygienic shops, pet shops, press shops, beauty salons, car services, home appliance repair services, agricultural markets, taxi services, or private transportation.

By our rough estimates, the 2nd lockdown will widen economic contraction to 5.5% in 2020, revised downwards from our existing forecast of -5.1%. We expect economy to rebound to 5% growth in 2021 assuming tourism to recover to 50% of its 2019 level; without recovery in tourism we expect growth at around 3.5% in 2020. We will provide more precise view on Georgia’s economy once 2021 final draft budget will be available on November 30, 2020.

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Regional Fixed Income Market Watch October 2020

3 Nov, 2020

• Regional fixed income securities traded mixed in October. After three failed cease-fire attempts by international mediators, the situation in the Nagorno-Karabakh region remains escalated, while Turkish lira hit new lows as Turkish Central Bank (CBT) left the policy rate unchanged, contrary to expectations of a sizeable hike.
• In its recent Global Financial Stability Report the IMF staff pointed out that bond spreads “appear to be too compressed relative to economic fundamentals” in both, advanced and emerging markets. The main reason behind this decline in spreads is unprecedented policy support, according to the IMF.
• Growing number of empirical evidence points out that major advanced economies’ monetary policies, particularly the Fed’s, have substantial quantitative effects on emerging market economies, as dollar remains to be the most important funding and trading currency. According to the IMF staff calculations, US policy actions account for 25%-50% of the decline in emerging markets’ long-term interest rates. More precisely, expansionary policy measures since COVID-19 have reduced emerging markets’ long-term bond yields in the range of 30–60bps out of the total of 120bps decline since the peak in March. Monetary easing in advanced economies has also contributed to the appreciation of emerging market currencies by several percentage points.
• According to the IMF calculations, capital flows were very volatile in March and April, when the Caucasus and Central Asia region (Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan) saw estimated US$ 0.7bn capital outflows. With marginal positive flows seen in summer months, cumulative outflows from the region since the start of the crisis still remain negative at c. US$ 0.5bn.
• CBT surprised the markets by keeping its 1-week repo rate at 10.25% against the Bloomberg consensus of 175bps hike. This came in more surprising after the 200bps hike in the key rate last month, when hopes for more reliable and predictable policy were strengthened. Other regional monetary authorities kept policy rates unchanged given high uncertainty and a two-way pressure on inflation expectations. Excluding Turkey, all other regional central banks had reduction guidance on the latest meetings, due to prevailed weak demand and prolonged recovery hinted by renewed IMF outlook.
• The surprising move from the CBT and rising tensions between Turkey and US sent lira to a record low in October (depreciating by 8.2% m/m), trading above 8.0 against USD for the first time (8.3/US$ by 30 Oct). Some investors warned that CBT might need emergency rate rise if “the currency continues to spiral lower”, which was denied by the CBT governor, however noted that borrowing costs in the system would rise in the coming weeks. From other regional currenciess RUB and GEL were the weakest performers in October, depreciating by 2.4% and 1.5%, respectively. AMD and BYN depreciated by 0.8% and 0.7%, respectively, while other currencies remained mostly unchanged.
• Armenia’s sovereign Eurobond continued poor performance, with the yield jumping by 28.3bps in October, while risk sentiment on Azerbaijan somewhat improved, with the yield on AZERB 24 down 25.3bps, but still above pre-conflict levels. TURK 21 and UZBEK 24, performed also weakly, with the yields increasing by 15.7bps and 12.6bps, respectively. Other regional Eurobonds benefited from the improved risk sentiment, with the yields dropping in the range of 18-90bps. UKRAINE 21 was the best performer in October, followed by BELARUS 23 and GEORGIA 21.
• Among Georgian placements, surprisingly Silknet and Geocap were the best performers of the month, with the yields hitting 8-month low by end of October. Yields on SILKNET 24 and GEOCAP 24 narrowed by 69bps and 45bps, respectively. GOGC 21 gained in October, with the yield down by 18.4bps, while yield on GRAIL 22 widened by 21.5bps. Yields on Georgian banks widened in October in the range of 11-16bps.

Please see the full report for detailed coverage of the fixed income markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, Ukraine, Russia, Turkey, Uzbekistan.

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Tbilisi Real Estate Market Watch - October 2020

30 Oct, 2020

Tbilisi real estate market drastically improved in September 2020 along with strengthening economic recovery. Key takeaways from the report include
  • Apartment sales were up in September (+14.4% y/y) after sales contracting in July (-14.9% y/y) and August (-16.3% y/y). Suburban districts dominated sales in 3Q20 as mortgage subsidy scheme supported transactions in budget/economy segment. As a result, the 4 suburban areas accounted for 56.1% of total residential sales in 3Q20 vs 52.0% in 3Q19.
  • New apartment prices were down in July (-8.6% y/y) and price reduction slowed in August (-7.6% y/y) and September (-5.9% y/y). However, this reduction was most likely driven by dominance of economy apartments in total transaction mix rather than market price correction. This means that the government’s 4% mortgage interest rate subsidy program supported real estate prices in 3Q20. 
  • We expect apartment sales to moderate in 4Q20, from September 2020 highs, as rising COVID cases and GEL depreciation may weigh on house buying decision.
Please see the full note here, which brings together real estate sale and price analytics for 3Q20, Covid-19 impacts and other statistical information available in the real estate market.

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