OTP Capital’s Heading: View on the current events
Dear Investors and Depositors, traditionally, we publish our prompt messages regarding the vision of the current economic situation in the world and Ukraine, as well as the status of assets held in the portfolios of investment and pension funds managed by OTP Capital.
What is happening in the world?
The oil has broken china in the world markets. In particular, on Monday, the May futures price dropped below zero for the first time in history and hit a negative value of minus USD 37 per barrel. In fact, this has created a situation where the sellers pay extra to the buyers for the purchase of WTI oil. This is all due to the significant excess of supply over demand in the context of limited oil storage. That is, the lower demand and storage capacity have created a situation where it is more profitable for the sellers to pay for the storage than to suspend the wells. Currently, there are many viewpoints on the oil market ranging from minus USD 100 per barrel to the quick situation stabilization. In any case, the oil market is critical to the economic health of many countries, and the negative values make no joy.
What is happening in Ukraine?
Ukraine’s movement towards the IMF continues. A new obstacle in the form of 16 thousand amendments to the Law No. 2571-д “On the Improvement of Some Mechanisms of Banking Regulation” (the so-called “antikolomoiskyi” law) is overcomed by the Parliament by the amendment to the regulation and combining such amendments into separate groups. This will allow voting not on separate amendments but groupwise, which will significantly shorten the time of elaboration of this law.
As noted earlier, we expect a second reading voting on the law by the end of April, which will make the funding from the Western partners accessible. Both the President and the Government are aimed at the quickest possible resume of cooperation with the IMF. The President announced this viewpoint on Friday on one of the TV channels.
Another major event of this week will be the NBU’s decision on the discount rate, expected on Thursday, April 23, 2020. Market expectations are set more for the decreased interest rate, as the inflation is at a sufficiently low level, which opens the door for the National Bank to stimulate the economy through cheaper credit resources.
What is happening in the government bonds market and how does it affect the performance of the funds?
The G-bonds market, which is most important for the OTP Capital’s funds, is following the positive trends. In the secondary market, the demand is increasing, and the yields are gradually decreasing. The Government does not sell the government bonds at primary auctions. This is due to the high rates in the secondary market. Roughly speaking, the Ministry of Finance does not want to lend at the market at 14-15%.
The positive trends in the secondary market were once again reflected in the value of G-bonds in the funds’ portfolios. In particular, today, there was have revaluation of the G-bonds in most funds with a significant increase in their value due to a decrease in the yields from 17.5% to 16.5% on average. Increase in the value of the G-bonds increases the value of a fund’s assets, which in turn increases the profitability of the funds themselves. In particular, OTP Classic increased by 0.4% per day, OTP Kids – by 1%, OTP Podviynyi Rezultat – by 1.1%, OTP Podviynyi – by 1.4%. OTP Pension fund has the similar dynamics.
We are following the events. We stay relevant.
