OTP Capital column: View on the current events
Dear investors and depositors! We continue to publish the prompt notices regarding the current economic situation in the world and Ukraine, as well as the status of assets held by OTP Capital’s investment and pension funds’ portfolios.
What is happening in the world?
There is an optimistic spirit in the world markets. The greatest attention is focused on the coronavirus situation, where there are positive trends, because the dynamics of all key indicators of the pandemic are improving.
Oil market stabilization is also expected. As a result of the Conference held on April 12, 23 countries have pledged to collectively limit the oil production to record 9.7 million barrels per day. The reduced production will lead to the stabilization of the oil prices.
The stock market starts the reporting period for the first quarter. The actual results of the crisis will appear there. In the global stock market, the analysts’ positive expectations are prevailing. In particular, the average analyst forecast states that the key US S&P500 index for the next year will increase by more than 17%.
What is happening in Ukraine?
Ukraine has adopted a new “anti-crisis” budget that increases government spending to combat the economic crisis and protects the most disadvantaged population groups. The new budget has significantly increased the deficit, which is also a positive phenomenon in hard times for the country. The large budget deficit, in turn, encourages a more active move towards meeting the IMF requirements, as it will not be possible to execute the approved budget without the Western partners’ funds. Currently, the IMF fundraising is depending on the involvement of the so-called “antikolomoiskyi” law, with more than 16 000 amendments being made to the first version. However, statements by the government officials in the media demonstrate the Parliament’s resolve in this matter. Therefore, we expect the law to be adopted in the second reading in April. And this, in turn, will open the door to financial involvement from the Western partners, and the whole world. Today’s recommendation of one of the largest banks in the world, Citibank, which advises to buy the Ukrainian bonds – both USD and UAH, is indicative. The Bank sees strong signals regarding continued cooperation with the IMF.
Another positive signal for the country’s economy is the statement of the Prime Minister of Ukraine on the development of a strategy of gradual reversal from the quarantine, which may start as early as May, which will help to resume the economic activity in the country.
What is happening in the government bonds market and how does it affect the funds’ performance?
The government bonds market, which is the most important for OTP Capital funds, continues its positive trends. The demand is increasing, the volatility is gradually decreasing, and the yields are also moving towards lower values. In particular, today, most funds have revalued the government bonds with a significant increase in their value due to a decrease in yield from 19.5% to 17.5%. Increase in the value of government bonds increases the value of the funds’ assets, which increases the profitability of the funds themselves. In particular, the OTP Classic fund grew by 0.9% in one day, OTP Kids– by 2.2%, and OTP Podviynyi Rezultat – by 2%. OTP Pension has similar dynamics – +1%.
We keep track of the following events. We stay tuned for more news.
