Why Russia is favourite bond investment

08-Dec-2012

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(By EM) Risk appetite is likely to come back to the markets early next year if the US “fiscal cliff” issue is sorted, Danske Bank analysts say.

The analysts are positive on some emerging market bonds and especially on Russia, which next year will give wider access to foreigners to its bond market.

In a recent interview with Emerging Markets, Alexei Moiseev, deputy finance minister of the Russian Federation, said he was looking to encourage both foreign and domestic participation in the ruble-denominated Treasury bonds, the so-called OFZ.

For the next 6 months, the Danske analysts are overweight Russia by 11.4%.

“Russia maintains its position as our largest overweight, as we are still relatively positive on the Russian economy, despite a slowdown recently, while carry is strong too,” they said.

Danske bank’s second overweight is Hungary, despite the country’s one-year, inconclusive talks with the International Monetary Fund (IMF) over a loan of around 15 billion euros ($19 billion).

“Our new second overweight, Hungary, on the other hand has an economy that is fundamentally very weak but carry is still attractive and we expect the forint (HUF) to benefit from an improved global risk appetite on a six-month horizon.”

In the neutral range, Danske Bank analysts have a 4.4% overweight in Poland and a 4.3% underweight in Mexico. Poland, which was placed in the neutral range last month, was however moved from a slight underweight to a slight overweight bias “reflecting a more upbeat outlook for the zloty (PLN).”

“While we were rather positive on Mexico a month ago, we have changed our view a bit this month, as we have a weaker outlook for the peso (MXN) and hence we have reduced our Mexican weight,” the analysts said.

South Africa – where the central bank kept the interest rate on hold at 5% on Thursday – is the largest underweight in the Danske Bank portfolio, with -9.2%, followed by Turkey with -8.1%.

The analysts believe the South African rand (ZAR) is “fundamentally overvalued, despite the recent sell-off.”

“The Turkish underweight reflects relatively high inflation and large external imbalances,” they said


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