CEE Bond Markets Outlook

24 Octombrie 2010

RAIFFEISEN BANK S.A.

 

Highlights

Poland – EUR/PLN is mainly driven by huge capital inflows and, given that the Fed is willing to react with further QE measures to a slowdown in economic activity, there is little scope for EUR/PLN to rise to above 4.00. We expect EUR/PLN to oscillate around 3.90 until the end of December and to fall further to 3.85 by the end of March. We change our "Sell"-recommendation for Polish bonds to "Neutral".

Hungary – Prime Minister Orbán Viktor already unveiled some budget plans of the government this week. The  announcement involves temporary "crisis taxes" for 2010-2012. These taxes aim to halve the profits of the telecom and energy sector and the retail chains as well. The announced measures also include a freeze on budget transfers to private pension funds.

Czech Republic – The governor of the Czech National bank, Miroslav Singer, said that the foreign trade data do not suggest CZK would be unsustainable at the current exchange rates: the koruna has stayed at strong levels around 25.40-25.50 against EUR. Another CNB board member, Kamil Janacek, mentioned that the CNB could increase key interest rates faster than assumed in the CNB forecast, should the new data show a faster-than-expected recovery driven by exports.

Romania – Protests of the employees in the Ministry of the Finance against the cut in stimulus, the no-confidence vote likely to be initiated by the opposition parties the next week, and the regular review of technical missions from the IMF and the EC due to start as well next week are the key issues at the moment which might have also an impact on the exchange rate and the interest rates in the coming period.

Croatia – In Q2 2010 Croatia received EUR 96.1 mn of FDI, down 81.1% yoy. In H1, total FDI amount EUR 645.8 mn, which is almost 32% less than in H1 2009. This massive decline in FDI inflow was largely anticipated due to still high risk aversion. On the other hand, to some extent, the weak inflow of FDI is also the result of the unfavourable investment climate in Croatia and the strong administrative barriers (both financial and time-related).

Russia – Russia’s central bank first deputy chairman, Alexei Ulyukayev, said the bank has widened its floating basket corridor to 4 roubles from 3 roubles and reduced the amount of so-called "border" interventions. Today September industrial production data may reveal a slight weakening of output. Market consensus expects IP index to grow between 4.5% and 10.0%, while we project 6% growth maximum.

Turkey – As long as enough portfolio investment is flowing into the country, additional nominal appreciation is still possible. Yields on local government bonds could inch still lower, given the unchanged stance of the CBT and a falling inflation rate in the coming months. At the same time, we see an increased risk of setbacks (both for bonds and the lira), due to profit taking.

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