Capital market development

Azerbaijani capital market is experiencing the next wave of development:
1. The regulator, FIMSA, signs an MOU with RBI to attract foreign investors into Azerbaijan. Local government and financial institutions address the issue of managing liquidity in the domestic market. (source: NDC)
2. In December 2019 Baku Stock Exchange turnover decreased 2.4x compared to the same month of 2018 and stood at US$605.8mn, however the repo operations used to sterilise the money supply grew 2.3x on the annual basis. Money-market depos in the central bank continually experience over-demand from Azerbaijani banks. (sources: Azernews.az, Trend.az)
3. Roughly 75% of transactions in the government bonds take place on the primary market, while the remaining quarter in secondaries is traded mostly OTC. This statistic proves that the asymmetry-of-information arbitrage, as a core strategy of Frontera, continues to bear fruit for our investors.
​(source: Trend.az)
4. Peer comparison of 3-year Turkish government NY-listed US$ Eurobond with local manat (AZN) 3-year government issuance indicates 213bps spread of AZ Ba2-rated issue over Ba3-rated Turkish issue (7.72 vs 6.59 bid yield on 14.02.2020 US market close). Higher-rated Azerbaijani bond is a bargain due to large liquidity premium on the Turkish issuance imposed by the New York listing. Frontera realises it's alpha based on this premise (source: partners in Azerbaijan, internal calculations, FT.com)
5. Central bank of Azerbaijan continues the interest rate corridor policy while keeping the peg of manat to dollar unchanged at 1.7 USD/AZN (1). The goal of keeping inflation in low single-digits is achieved, giving the room to further reductions of both lower and upper band (2) in the interest rate corridor.
​(source: CBA-1, CBA-2) 

Frontera actively monitors the domestic market in Azerbaijan positioning the investment strategy for 2020 as THE ​SAFE HAVEN IN EMERGING MARKET ANTI-FRAGILE YIELD-SEEKING​.
Our criteria for building the strategy:
1. Tail risk: skew and curtosis,
2. Balance: Liquidity focus and Tail risk,
3. Positioning: absorbing yield-seeking capital flow in the increasingly fragile phase of mature global macroeconomic expansion amid exogenic shocks to the world economy.

​Contact us to learn more.

Disclaimer: Opinions presented alongside historical data from government sources are subjective views of the author and do not constitute an investment advice. Values of your investments may go up and down. Gains achieved in the past are not exact predictors of expected results.