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21.05.2008 - MDM Bank: Results of our Russian Fixed Income Investor Survey
(for a full version of the investor survey results pls see attached pdf file)
Key takeaways: Market participants await moderate rise in ruble bond rates
Between May 14 and 16, MDM Bank conducted a survey among local clients concerning bond market sentiment. The survey took the form of a questionnaire in which participants outlined their opinion on selected issues affecting the Russian bond market. We received 127 filled questionnaires from 102 different organizations over three days; 18% of the respondents represent foreign-controlled organizations, while the remainder were Russian market players. Over three quarters of the respondents were from banking – the rest were professionals from investment funds, asset management and brokerage companies (see charts below). We believe the survey sample is representative, especially given the local debt market focus of the survey.
We carried out our first survey on September 19-21, 2007 at the dawn of the global credit crisis. Back then, investors were moderately optimistic and awaited stabilization in the short-term (in 3-6 months) and a decrease in yields – albeit well above the level of `hot` spring-summer of 2007.
Apart from Eurobonds, where yields did suffer somewhat (primarily, though, due to US interest rate cuts), the final analysis proved gloomier than the consensus estimates based on our September survey.
As we all know, the last 9 months saw many interesting developments. The global financial system suffered a series of blows; the FRS and other central banks took unprecedented measures to defend it, global inflationary spirals accelerated; Russia’s Central Bank and government also took active steps, of which, the increase in the key ruble interest rates by the monetary regulator was arguably the most unexpected.
With all this in mind, it is quite natural that our survey reflected less optimistic attitudes among investors, especially in regards with ruble yields. Market participants expect that this year the Central Bank will most likely increase rates further, whereas ruble yields should rise, albeit not by much. That is why few respondents deem it appropriate to start increasing the duration of their bond portfolios. In addition, the majority of the respondents agreed that the public debt segment has lost its ‘marketability’ over recent months, while the government should cut its program of sovereign debt issues (OFZ) under the current conditions.
The major outcome of the survey was the mixed sentiment of the market players toward the state support of Russia’s banking system, including the allocation of budget and state corporations’ funds to private banks and ruble bonds. Opinion was divided on these issues: just 51% of the respondents were positive about the measures.
The other areas of interest include the divided opinions on the ‘fair spread’ between Moscow City bonds and 1st tier state banks’ bonds, moderate estimates of possible defaults, neutral expectations relative to the dynamics of the global risk appetite in 2H08, and a sustained belief in stronger nominal ruble to the bi-currency basket.
A propos, we noticed that representatives of ‘foreign’ market participants were somewhat more pessimistic in their responses vs. Russian investors.
