The year of 2020 was not an easy one for most sectors of business. Let’s consider ways of how the financial market reacted to the events and its most distinctive trends we can admit in different sectors during 2020.
The yield performance of hryvnia domestic government bonds (IGLBs) was very volatile during 2020 due to the coronavirus pandemic. Such securities were available for sale in January-February with the yield to maturity of 10%-11%. The prices of IGLBs fell significantly in May-April due to the sale on foreign markets, leading to the yield jump, which doubled. The demand for IGLBs increased and the yield dropped back to 11%-12%. The panic of foreign investors and inconsistency in the actions of the state leaders led to an aggressive sale of IGLBs in the spring of 2020. However, the development of a coronavirus vaccine and the stable macroeconomic situation in Ukraine returned the interest in Ukrainian bonds in December, enabling the Ministry of Finance to attract over UAH 115 billion to the budget during the last month of 2020.
The yield performance on the dollar IGLBs market showed moderate fluctuation throughout 2020: from 1% to 1.5% for short-term (up to 1 year) IGLBs, and from 3% to 3.8% for medium-term IGLBs. The demand for short-term IGLBs was correlating with the devaluation of the hryvnia, while for the medium-term IGLBs it was corresponding to the periods of expectations of the negative scenarios in the country’s macroeconomics.
Demand for Ukrainian Eurobonds during 2020 was volatile, causing high turbulence in yields to maturity: from 4%-6.5% in January-February to 10%-17% in April-May and 4%-6% in December. The major factors prompting the rise of Eurobond yields were the global crisis caused by the Coronavirus pandemic, government and presidential actions that led to the collapse of reforms and cooperation with the IMF, as well as the dismissal of the NBU Chairman in violation of the current employment contract.
Average deposit rates have been steadily declining throughout 2020. The short-term hryvnia deposits rates dropped from 14.4% to 8%, while the rates on the annual hryvnia deposits did from 15.1% to 8.7%. The rates on a dollar short-term deposit dropped from 1.5% to 0.6% and those on an annual dollar deposit did from 2.5% to 1.3%. The euro short-term deposit rates remained at the point of 0.2%, while the annual ones decreased from 1.1% to 0.6%.
The devaluation of the hryvnia against the dollar reached 19.3% in 2020, from UAH 23.69 to UAH 28.27 per USD, which was caused primarily by the global crisis due to the pandemic and the stagnation in the economy due to the lockdown. In addition to the global economic processes, the liberal policy of the NBU, appeared on the market as the new regulatory management member, had not interfered the Hryvnia’s dropping-down.
Low liquidity of shares in Ukraine has remained the major feature of the stock market in recent years. In 2020, the Ukrainian stock market grew by 6.5% (the Ukrainian stock exchange index), although it had decreased by 15.7% throughout the year. The only liquid player in the index basket is Raiffeisen Bank Aval JSC. This financial institution has been showing profitability and paying large dividends to its shareholders for 4 years in a row, which resulted in increased demand for shares and enabled the growth in the share price by 29.7% in 2020. Other players of the UB index basket closed the year showing the following indexes for the share price: 34.5% up for Ukrnafta PJSC, 25% down for Turboatom PJSC, 23.1% down for Centerenergo PJSC, 18% down for Donbasenergo PJSC.
The NBU pursued a soft monetary policy throughout the year of 2020, systematically lowering the discount rate, which fell from 13.5% to 6%. The low inflation rate of 4.1% in 2020 (1.8% in 1H2020) was the prompting factor for the regulator to act in such a way. OTP Capital expects the soft monetary policy of the regulator to be continued in the first half of 2021.
