Ukraine’s government has done an “exceptional job” in responding to Russia’s annexation of Crimea, Franklin Templeton’s Michael Hasenstab has claimed.
Mr Hasenstab, chief investment officer for global bonds and manager of several giant fixed income products, said the country’s leaders had “set the stage for Ukraine to potentially flourish over the next five to 10 years, putting in place very difficult but very important structural reforms”.
The manager has a 9.8 per cent position in Ukrainian government bonds in his $6.5bn (£3.9bn) Templeton Emerging Markets Bond fund, roughly equal to $637m.
In an update to investors following a recent trip to the Ukrainian capital Kiev, Mr Hasenstab said: “We believe the long-term potential of Ukraine is remarkable... When we had first considered Ukraine as bond investors, it made sense to us. Then, the crisis came.
“The subsequent events in Ukraine have been tragic and unsettling. But what encouraged us was the response to the crisis.”
Mr Hasenstab added: “The first priority should be to establish macroeconomic and financial sector stability, which should be accompanied by key structural reforms to jumpstart growth. The World Bank has stated that if a ‘proper policy mix’ is adopted quickly, growth should resume in Ukraine in 2015.”
The country recently agreed an aid package with the IMF and other countries which could supply Ukraine with as much as $27bn in support in the next two years. It exited recession in the fourth quarter of 2013, registering 3.3 per cent annualised economic growth after five consecutive quarters of contraction.
But in the short term Ukrainian government bond yields - which move inversely to prices - spiked to more than 11 per cent during March at the height of the tensions as Russian troops moved into Ukraine, according to data from Tradeweb. Since March 17 yields have been gradually falling to reach just below 9 per cent at the end of the month.
He added: “Certainly there is a crisis, and visitors can clearly see evidence of the challenges the country is facing. However, adversity doesn’t define a country: it’s how the people respond to adversity that defines a country. And I think the crisis response, the coming together of the people to make steps in the right direction, is encouraging and even heroic in many senses.”
Mr Hasenstab’s Emerging Markets Bond fund has lost 11.3 per cent in the 12 months to April 9, according to FE Analytics, amid a turbulent environment for the asset class.
