The cost of credit default swaps (CDS — credit default swap) fell to two-year lows amid growing oil prices and investors ‘ expectations that the policies of the elected President of the USA of Donald trump will help to improve relations between the US and Russia. On Tuesday, December 27, ten-year CDS was trading at 233 b.p. since the beginning of December their value fell by 54 PPT
Five-year CDS since the beginning of December fell 46.5 points, to 178 b.p.
The CDS price indicates that investors assess the default risk of a particular country. The last time the price dropped to the current values in July 2014. For example, July 16, 2014 ten-year swap was trading below 226 b.p. However, while a barrel of Brent oil cost above $100 and the dollar on the Moscow exchange traded at 34-35 RUB on Tuesday, 27 December, oil was trading above $55 per barrel and the dollar on the exchange was worth 60,83 RUB.
“The reduction of default risks related to the positive expectations of investors”, — says the analyst of “Finam” Bogdan Zvarich. He recalled that the Russian stock market in 2016 showed one of the best results among emerging markets. Since the beginning of the year, the MICEX index grew by 23% (Tuesday, December 27, he is at the 2179,89 points) and the ruble strengthened more than other currencies. In January the dollar rate on the exchange reached RUB 78-79, and in some moments of American currency was worth above 81 rubles. “If the price of oil will rise, the ruble may continue to grow, and it will improve the situation with the budget. This factor, foreign investors also take into account,” notes the analyst.
According to calculations the Citibank, from the beginning of the year foreign investors have invested in shares of Russian companies more than $720 million has been Particularly active investors invested in the last few weeks. According to Citibank estimates, the end of November, inflows into funds investing in emerging markets, amounted to $829 million While the inflow was mainly due to Russia, where the market in the last three weeks increased by 19% in dollar valuation, according to a review of the Bank.
Foreigners actively invested in the debt market. According to the Bank of Russia, the share of Federal loan bonds (OFZ bonds) by foreign investors on November 1, 2016 was $ 26.8, compared with 21.5% at the beginning of the year.
According to experts, the mood of investors affected and the winning trump in the elections in the United States. “Based on the rhetoric of the future head of the White house, investors expect a warming of relations with Russia and a possible easing of sanctions,” — said the Director of analytical Department “Veles the Capital” Ivan Manaenko. According to the economist of Danske Bank, Vladimir Miklashevsky, the market has become much less sensitive to geopolitical risks in Russia than in 2014. “There are even investors who expect the lifting of anti-Russian sanctions by the administration of trump,” he says.
In addition, it indicates miklashevskii, 2016 closes with a much smaller budget deficit than the market had feared earlier, despite the current price of oil. “The prospects for reducing the budget deficit in 2017-2019 years due to revenue and expenditure possible”, — the expert believes.
Chief expert of center for economic forecasting of Gazprombank Yegor Susin believes the optimism of foreign investors is also associated with a reduction in external debt of the country. “A significant portion of foreign currency debts already repaid, so the risk of default on external obligations is now even lower than in 2014,” he says. According to the economist, the recent assessment of Russian risk was even slightly too high, and now foreigners are reconsidering their attitude to investment in the country’s economy. “Risk premiums may decline further,” — said Cousin.
“Reduction of cost of risk investment in Russian assets can spur a new influx of foreign capital into the country that can provide substantial support to the economy”, — said Zvarych of the “Finam”.
With the participation of Catherine Markhulia