Russia and CIS Sovereigns - Trade Ideas Review

Looking into 1Q20, we retain a moderately positive outlook for EM assets. With the prospects for duration trades looking questionable, we expect investors to give greater consideration to credit risk as a major source for return. With this in mind, we have selected our top picks and amended our list of trade recommendations accordingly.> Russia 28. The flat structure of the Russian sovereign curve in terms of carry, risks associated with the long end of the curve and the high carry of these cash-rich bonds make the Russia 28 our top pick.> Ukraine 26. We do not expect developments in the country to unfold in a worse way than the market currently expects, at least not in 1Q20. In the absence of major negative market triggers, we expect global market factors to drive Ukraine's credit spreads tighter.> Tajikistan 27. After the bonds' prices hit the bottom and rebounded, we still see the current credit spread levels as too wide. We expect the nominally high yield and investors' search for return to drive the Tajikistan 27's spreads tighter over the coming months. > Ruble-denominated Belarus 22. We recommend buying the Belarus 22, which trades on the Russian local market, to lock in a 140 bp extra premium over 3y OFZs. The paper's outlook is promising given the expected CBR rate cuts, the inflow of local retail money and the expected normalization of relations between Russia and Belarus.> Belarus 27. We reiterate the call that we initially made on December 18. We see value in the paper due to its nominally high carry (currently 6.7%), exposure to the high-yield segment, which we expect to perform well in 2020, and also because of what we see as the high chance of a positive outcome from the negotiations with Russia regarding the union state.