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. Last Updated: 07/27/2016

Investors Look Afield For Bigger Returns

Emerging-market fixed-income investors, dissatisfied with falling yields on Russian Treasury bills, are looking to smaller and riskier ex-Soviet countries' securities, analysts and investors say.


Former Soviet republics from Baltic Latvia to Central Asian Uzbekistan issue government securities, but investors looking for high returns, increasing stability and a liquid market are especially eyeing Ukraine and Central Asia's Kazakhstan.


"Foreign participation should rise fairly quickly this year," Kazakh Finance Minister Alexander Pavlov said recently.


Dollar-adjusted yields in Ukraine are about 20 percent and could stay that way for the year, some analysts say, while Russian T-bill yields are about 27 percent, before inflation and currency risk, and are seen falling to the low 20s soon.


"The margins are no longer there [in Russian T-bills]," said Mark Jarvis, general manager of Flemings in Moscow. "We were thinking of launching a GKO [discount T-bill] fund, but we are not now. If we do anything, we will be looking for the next stage -- Ukraine, Kazakhstan or the equivalent."


He forecast Ukrainian yields would average 25 to 26 percent for the year and returns in dollar terms would be "20 plus", although large investment flows could decrease the yields.


"Currency and inflation risk -- the general feeling is that they are not going to be a big problem," he said.


But fixed income analysts said interest in Ukraine, with a stable currency currently appreciating, was limited primarily by the size of the market.


"Relative to Russia it is a small market and there is a huge amount of interest in it," said Roland Nash, chief economist at Renaissance Capital investment bank.


Nash said currency stability looked good assuming foreign funds, including those from the International Monetary Fund, flowed into the country and new tax and budget laws were passed.


Central Bank head Viktor Yushchenko said the 1997 draft budget foresaw 3.4 billion hryvnas ($1.9 billion) in borrowing such as T-bills in 1997.


The total volume of outstanding Russian T-bills and OFZ federal loan bonds is about 250 trillion rubles ($45 billion), while nominal and daily market turnover is close to $1 billion.


The Russian Finance Ministry in November said it expected to issue about 15 trillion rubles in T-bills and 30 trillion rubles in bonds in 1997.


Growing interest in Kazakh debt is also limited -- foreigners face a 15 to 30 percent participation cap in primary issues but no limits on the secondary markets and no taxes.


"They really seem to know where they are going [economically]," Nash said. "But it is very hard to get paper."


Kazakhstan issued a successful Eurobond last year and yields on three- to 12-month T-bills fell to between 24 to 31 percent in February from 29 to 39 percent at the end of 1996 and 48 to 55 percent at the beginning of the year.


Government agencies target 1997 inflation at 17 to 21 percent and say Kazakhstan's tenge currency will finish the year at about the present rate relative to the dollar.