Middle-week thoughts: hryvnia is thrown under a tank?

Tags: Yevhen Pentsak, fund market, eurobond, exchange rate, investment, investor, NBU

We have missed the rapid growth of the stock market and hryvnia; which strokes and surprises the Ukrainian market is preparing as well?

The government is reporting about the plan of the state budget’s filling, even about his overfulfillment, and all this happen at the same time when the revitalization of business activity in Ukraine is not visible. And together with it, it is not surprising to observe the strengthening of the national currency, the rapid growth of the stock market, etc.

The reason behind the Ukrainian miracle is simple: the Cabinet of Ministers is issuing government bonds, and then these bonds are bought back by the National Bank and the received funds are sent to the budget by the Cabinet of Ministers. Official sources report that the portfolio of National Bank’s public bonds grew to UAH 5.6 billion in April, and to UAH 7 billion - in March. And then the question arises: why did hryvna regarding the dollar continued to rise? What we have to do: to buy hryvnya, sell the dollar or to do one and another at the same time? Have we to buy stocks and eurobonds or sell them? These questions are troubled us now and it is hard to find the answer.

I will try to explain my point of view. The population of each country is divided into different categories of people who are perceive the market information differently. In particular, the Government and National Bank are trying to provide information about the growth of hryvnia, and it will be interpreted as a signal to the Ukrainian economy improvement and restoration of investors’ confidence in Ukraine. The government is trying to manipulate the expectations of the population, because government is aware that the population possesses nearly $ 30 - 40 billion, which could expand the market in the opposite direction. Let’s think, whether the trend of hryvnia’s growth will be kept? Who can support it? Exporters? No. It is not in their interests. Importers? How? The low rate of dollar and euro is profitable for them, but they will not risk and sell «excess» currency. The major players? Maybe, but their motives will be opposite: they will be fixing their profits at the shares market and converting the income back into currency. Who will want to keep the risks unhedged in summer? Let's take into consideration people who may start panic and begin to sell the currency. And why people need hryvnia in summer? To rest basically. So where our people got accustomed to rest? Turkey, tours in Europe, a bit in Carpathians and Crimea. Do they have to sell the currency? If so, then in what small quantities that do not affect the market. The National Bank is left, because there is a need to replenish foreign currency reserves by purchasing back the dollar and the euro at the lower rate from the population.

If now the «economically reasonable» dollar rate is UAH 7.20, so we can expect that the positive prognosis for dollar rate will be UAH 7. And those who do not have enough adrenaline, they can try to sell part of dollars and then try to buy it at a lower rate. Thus, you can earn on every dollar about 30 copecks, regarding the commission costs. On the other side there is a risk that events will develop in the opposite direction. So then you can lose UAH 2 at every dollar.

My advice: do not panic, do nothing, continue to keep funds in the following form:

  • 20% - in hryvnia,
  • 30% - in dollar,
  • 30% - in euro,
  • 20% - in cash or cashless gold.

If you get the «fresh» income, then spread it in the same way.

And those who have more tolerance to risk and has a large sum to invest, I suggest to look closely to eurobonds of Ukrainian companies. Their profitability is fairly attractive in comparison with bank deposits, and they can reach 30-40% per annum. However, try to choose reliable issuing banks and do not expect the profitability of 200-300%.

Paul Krugman, the Nobel laureate in economics in 2008, argues that there is no reason to expect a rapid recovery of growth in the economies of the world (http://www.bloomberg.com/apps/news).

He said that the recession will not end quickly, and what is more it will be stagnation at markets for a long time.

I wish you successful speculations on the heterogeneous expectations of investors! Exciting game, is not it!

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See also:

Мысли среди недели:путь к спасению мировой экономики

Последние события на мировых фондовых рынках заставили задуматься, как близко мы стоим к краю мировой экономической пропасти. События 11 марта 2011 года, 4 августа 2011 уверенно указывают на то, что депрессивное десятилетия начала третьего тысячелетия будет иметь еще более депрессивное продолжение. Движется ли мир в хорошем направлении во всех смыслах слова «добрый»? Может долго держаться макияж, если наносить один слой пудры за другим?

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