Investor outflow may collapse hryvnia
Investor capital continues to flow out from the markets of developing countries, according to KyivWeekly. According to Reuters, the net outflow of capital from the funds investing in BRIC countries (Brazil, Russia, India, China) made up US $9.5 bn since March 2010. The size of the aggregate assets of these funds shrank 25% to slightly over US $28 bn from US $38 bn in 2007. According to Goldman Sachs, the stock of companies that mostly earn on their subsidiaries in developing countries have dropped 15% since April 2011, the largest decline since 2009.
In the nearest future, the process will continue to develop. As the speculations of hryvnia devaluation increase and should the financial crisis in Europe deepen, non-residents will be more actively pulling out their investments in the hryvnia. “However, the situation could change if the IMF announces the renewal of loans to Ukraine, seeing as the withdrawal of non-residents from the T-bills market was largely provoked by statements made by the fund. Be that as it may, if the outflow of hard currency investments from the country continues, the NBU will be forced to devaluate the hryvnia,” President of the Ukrainian Analytical Center Oleksandr Okhrymenko told KW.
“The volume of T-bills in non-resident portfolios dropped from UAH 8.9 bn as of August 8, 2011 to UAH 6.7 bn on September 5, 2011. This means a 25% decrease,” says Chief of Analytical Department at Eavex Capital Volodymyr Dynul. “Aside from the pressure on international capital markets, the withdrawal of non-residents from investments into T-bills in August was also due to the partial devaluation of VAT bonds issued a year ago. In the current situation on financial markets it is totally logical that investors are trying to avoid risky and non-liquid investments,” added Iryna Piontkovska, a macroeconomic expert at Troika Dialog Ukraine.
The outflow of capital from developing markets assumed particularly large proportions in the last month of summer. According to Emerging Portfolio Fund Research (EPFR), the capital outflow from funds investing in shares of companies from Russia and CIS countries exceeded US $1 bn over the four weeks of August amounting to US $1.251 bn. Moreover, the capital outflow from funds investing in Russian stock hit a 5-year record in the period August 18-24 when investors withdrew US $491 mn within a matter of one week.