ICU expects resumption of IMF funding, hryvnia strengthening in 2018 - managing partner

The resumption of lending to Ukraine by the International Monetary Fund (IMF) under the EFF program is the key issue for the survival of Ukraine, providing the country with some certainty and predictability for the near future, Managing Partner of ICU Investment Group Makar Paseniuk has said.

"This is the scenario [obtaining the next tranche of the IMF loan in the first half of 2018], in which we believe and taking into account which we make investment decisions," he said in an interview with Interfax-Ukraine.

Paseniuk added he expected the hryvnia to strengthen from the level reached in mid-January of about UAH 28.8 per $1, in particular thanks to the macro-trend in the world markets that is positive for Ukraine.

"This year, the growth of most commodity positions against the dollar will continue in the world. Against the backdrop of this there will be the growth of non-dollar currencies, primarily in the markets that are developing, as they are basically raw materials. This is a global macro-trend that will be a leitmotif for investors in 2018," the managing partner said.

At the same time, he pointed out that even with such a favorable external conjuncture, Ukraine's GDP growth this year will be limited to a maximum of 3-4%. Paseniuk stressed that in the absence of internal active actions for the growth of the economy, Ukraine remains a raw material country - a hostage of global macro-trends.

Among the investment ideas of 2018, the expert called investments in the undervalued eurobonds of a number of Ukrainian issuers.

"If we consider that we'll obtain an IMF loan, then against the background of two trends - the dollar curve and movement of the value of money - we can expect a decline in the yields of corporate securities of Ukrainian issuers," the expert said.

Paseniuk, as an example, quoted the rates on the eurobonds of Metinvest and DTEK, which are 9-9.5% per annum, comparing them with the rates on the eurobonds of MHP and Kernel that stand at 3.7-5.8% per annum.

"The difference in the yields of these securities is four percentage points. While the yield spread between Kernel and Metinvest or Kernel and DTEK will decrease. And even two percentage points of decline in the yield of five-year equities is a good rally to the existing price," he explained.

The expert also admitted that against the background of inflation the refinancing rate and the rate on government securities at the beginning of the year could still grow, but with the strengthening of the hryvnia, inflation expectations are weakening, and this should influence the market.

"I would proceed from the fact that ... the rates throughout the year, more or less, will be stable and yields on government domestic loan bonds, respectively, will also be stable," Paseniuk stated.

ICU Investment Group was established in June 2006. Currently it manages assets worth over $500 million, including the assets of Ukrainian investment and pension funds worth more than UAH 3 billion. The group also includes a securities trader, the leader in the government bond market, and Avangard Bank (the 52nd largest one out of 88 Ukrainian banks in terms of assets on October 1, 2017).

The main partners of the group are Makar Paseniuk and Kostiantyn Stetsenko with the shares of 41.7%, as well as Oleksandr Valchishen and Volodymyr Demchyshyn, who own 6.58% and 9.99% respectively.