Investors irked by capital control
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Bloomberg
Oluşturulma Tarihi: Nisan 01, 2009 00:00
MOSCOW - As the first global recession since the World War II slashes demand for exports simultaneously as the credit markets freeze, emerging markets such as Ukraine and Kazakhstan are driving away foreign investors through capital controls, in an effort to contain the effects of the crisis.
Ukraine and Kazakhstan, home to two of this year’s worst emerging stock markets, are driving away investors by attempting to prevent capital flight.
Ukraine ordered banks this month to buy and sell the hryvnia at a rate no weaker than a floor policy makers set each day. Kazakhstan’s parliament is preparing to give the president power to force exporters to sell the government their foreign-currency earnings for tenge.
"If you’ve got money in a country that introduces some sort of controls, that’s an issue and so we’re steering pretty clear of that area right now," said Andrew Bosomworth, a fund manager in Munich at Pacific Investment Management. "The best way to attract private money that’s going to stay there is to provide a coherent environment to invest in."
The two nations devalued their currencies and took over struggling banks in the past six months as the first global recession since World War II slashed demand for exports at the same time that frozen credit markets drove away foreign investment.
Ukraine’s PFTS stock index fell 26 percent this year and the Kazakhstan Stock Exchange Shares Index lost 28 percent, ranking among the worst emerging-market performers with Costa Rica, Nigeria, Serbia, Qatar and Bosnia, according to Bloomberg data.
Slumping currency
Ukraine’s foreign-currency reserves were reduced by a third in the six months to February, with most of that $12 billion drop due to the central bank’s purchases of hryvnia, said Ivan Tchakarov, an economist in London at Nomura Holdings. The currency has slumped 37 percent versus the dollar since September as sales of steel, the nation’s biggest export, fell 50 percent in the year to February and the governing coalition collapsed over the handling of the economic crisis.
President Viktor Yushchenko, a former central bank governor, opposes Prime Minister Yulia Timoshenko’s moves to fire current bank chief Volodymyr Stelmakh and to negotiate with Russia for a $5 billion loan.
Ukraine has received the first $4.5 billion installment of a $16.4 billion bailout from the International Monetary Fund. The IMF has delayed the second loan installment of $1.9 billion until the former Soviet state cuts a 2009 budget deficit equal to 5 percent of gross domestic product. The IMF will accept a budget gap of 3.1 percent of GDP, Yushchenko said March 23.
Minimum rate
The central bank’s mandatory minimum hryvnia rate was 7.9489 per dollar when it was last updated on March 27. That’s 4 percent stronger than the 8.28 per dollar spot rate currency traders at Galt & Taggart Holdings saw quoted on Monday, said Nick Piazza, head of sales at the Kiev-based brokerage.
Countries like Ukraine and Kazakhstan need capital controls so they can stop hemorrhaging money, said Douglas Polunin, who manages about $200 million in emerging-market assets, including Ukrainian and Kazakh equities, at Polunin Capital Partners in London.
"They help the economy because you don’t have this sudden flow of money rushing out of the country that has such a destabilizing effect on company balance sheets," Polunin said. "Overall capital controls are a good thing, though foreign investors do get frightened because of concerns they won’t be able to withdraw their money."
The central banks’ currency regulation department told lenders on March 17 that chairmen would be held responsible for the hryvnia exchange rates quoted on their bank Web sites and on information systems such as Bloomberg and Reuters, according to Natsionalnyi Bank Ukrainy’s head of external relations, Serhiy Kruhlik.
The hryvnia’s drop is rooted in "psychological and speculative factors" and authorities will leave "no stone unturned" in investigating possible currency speculation Yushchenko said in a statement on his Web site.
Yushchenko promised Ukraine would emerge from the crisis with a revived economy, saying the government has formed a "clear response."
"Clearly the level of foreign currency depletion is politically highly sensitive, and there’s an idea that speculators have ripped them off," said Tim Ash, head of emerging-market economics in London at Royal Bank of Scotland Group.
Bloodbath
Moscow-based Prosperity Capital Management, which oversees $1.9 billion in former Soviet assets, has been selling Ukrainian equities.
Its fund managers have been unable to get money out of the country because banks are unwilling to lose dollars from their stockpiles by converting hryvnia-denominated proceeds, said Ivan Mazalov, a Prosperity director. "It’s a bloodbath," he said.
Ukraine’s central bank has taken control of 11 local lenders since requesting the IMF loan.
Ukraine ordered banks this month to buy and sell the hryvnia at a rate no weaker than a floor policy makers set each day. Kazakhstan’s parliament is preparing to give the president power to force exporters to sell the government their foreign-currency earnings for tenge.
"If you’ve got money in a country that introduces some sort of controls, that’s an issue and so we’re steering pretty clear of that area right now," said Andrew Bosomworth, a fund manager in Munich at Pacific Investment Management. "The best way to attract private money that’s going to stay there is to provide a coherent environment to invest in."
The two nations devalued their currencies and took over struggling banks in the past six months as the first global recession since World War II slashed demand for exports at the same time that frozen credit markets drove away foreign investment.
Ukraine’s PFTS stock index fell 26 percent this year and the Kazakhstan Stock Exchange Shares Index lost 28 percent, ranking among the worst emerging-market performers with Costa Rica, Nigeria, Serbia, Qatar and Bosnia, according to Bloomberg data.
Slumping currency
Ukraine’s foreign-currency reserves were reduced by a third in the six months to February, with most of that $12 billion drop due to the central bank’s purchases of hryvnia, said Ivan Tchakarov, an economist in London at Nomura Holdings. The currency has slumped 37 percent versus the dollar since September as sales of steel, the nation’s biggest export, fell 50 percent in the year to February and the governing coalition collapsed over the handling of the economic crisis.
President Viktor Yushchenko, a former central bank governor, opposes Prime Minister Yulia Timoshenko’s moves to fire current bank chief Volodymyr Stelmakh and to negotiate with Russia for a $5 billion loan.
Ukraine has received the first $4.5 billion installment of a $16.4 billion bailout from the International Monetary Fund. The IMF has delayed the second loan installment of $1.9 billion until the former Soviet state cuts a 2009 budget deficit equal to 5 percent of gross domestic product. The IMF will accept a budget gap of 3.1 percent of GDP, Yushchenko said March 23.
Minimum rate
The central bank’s mandatory minimum hryvnia rate was 7.9489 per dollar when it was last updated on March 27. That’s 4 percent stronger than the 8.28 per dollar spot rate currency traders at Galt & Taggart Holdings saw quoted on Monday, said Nick Piazza, head of sales at the Kiev-based brokerage.
Countries like Ukraine and Kazakhstan need capital controls so they can stop hemorrhaging money, said Douglas Polunin, who manages about $200 million in emerging-market assets, including Ukrainian and Kazakh equities, at Polunin Capital Partners in London.
"They help the economy because you don’t have this sudden flow of money rushing out of the country that has such a destabilizing effect on company balance sheets," Polunin said. "Overall capital controls are a good thing, though foreign investors do get frightened because of concerns they won’t be able to withdraw their money."
The central banks’ currency regulation department told lenders on March 17 that chairmen would be held responsible for the hryvnia exchange rates quoted on their bank Web sites and on information systems such as Bloomberg and Reuters, according to Natsionalnyi Bank Ukrainy’s head of external relations, Serhiy Kruhlik.
The hryvnia’s drop is rooted in "psychological and speculative factors" and authorities will leave "no stone unturned" in investigating possible currency speculation Yushchenko said in a statement on his Web site.
Yushchenko promised Ukraine would emerge from the crisis with a revived economy, saying the government has formed a "clear response."
"Clearly the level of foreign currency depletion is politically highly sensitive, and there’s an idea that speculators have ripped them off," said Tim Ash, head of emerging-market economics in London at Royal Bank of Scotland Group.
Bloodbath
Moscow-based Prosperity Capital Management, which oversees $1.9 billion in former Soviet assets, has been selling Ukrainian equities.
Its fund managers have been unable to get money out of the country because banks are unwilling to lose dollars from their stockpiles by converting hryvnia-denominated proceeds, said Ivan Mazalov, a Prosperity director. "It’s a bloodbath," he said.
Ukraine’s central bank has taken control of 11 local lenders since requesting the IMF loan.