Client information of Aegon Hungary Investment Fund Management Co.
Dear Clients, Investors,
Hereby we would like to inform our clients about the effects of the extraordinary military conflict on the capital market and the suspension of Aegon Russia Equity Investment Fund.
The Russian invasion of Ukraine on 24 February 2022 and the consequent announcement of Western economic sanctions will have a serious impact on the regional stock and bond markets in the short term. The disconnection of a significant number of Russian banks from the international SWIFT system, the banning of Russian aircrafts from the airspace of EU member states, the USA and other countries, and the freezing of the assets of some Russian citizens are expected to cause severe damage to the local and global economy as well. The situation may change radically from day to day, which could cause significantly higher-than-usual volatility in global equity, commodity and foreign exchange markets.
The EU sanctions have completely banned trading in many Russian securities, while Russia has also imposed a ban on the sale of Russian securities to foreigners. In addition to the above, the European Union has also imposed a number of other economic sanctions, for example on oil refining, aviation, aerospace and maritime transport. These sanctions currently make it completely impossible to enter and trade on the Russian market.
There have been no material changes in the bond markets compared to the information provided last week as Russia continues to pay its coupon obligations on its Eurodollar bonds, and investors have also received the amounts in USD due on all corporate bonds until 23 March 2022. As of 23 March 2022, only the holders of Severstal, a steel and mining company, had not received coupon payments on its bonds. The reason for this is technical, the corresponding amounts have been initiated by the company, but the corresponding bank has not yet forwarded the amounts.
Local currency government bonds in the region remain under selling pressure. The war-induced inflation shock represents a significant revision to the inflation paths previously projected by central banks and this is significantly raising expectations for interest rate hikes. Currencies in the region are holding their correction levels after a very rapid depreciation. The forint is trading around 370 against the euro. The euro/zloty cross is hovering around the 4.7 level. On 24 March 2022 the National Bank of Hungary has further increased its one-week depo rate by 30 basispoints to 6,15%.
The Russian stock market has partially reopened on 24 March 2022 after a record length close of almost 1 month. Trading resumed in 33 of the 50 constituents of the MOEX index, which represents the local market, including the largest Russian companies Gazprom, Sberbank, Novatek and Rosneft. The index ended the day higher despite the fact that the introductions of major sanctions against Russia was announced only after the market suspension on 25 February 2022. The main reason for the rise is that significant restrictions remain in place despite the reopening. The most important of these restrictions is that the ban on the sale of Russian shares remains in place, meaning that foreign investors are still not allowed to sell or buy shares on the Russian market. In addition, the Russian Central Bank has banned the opening of short (sell) positions. On the demand side, the emergence of the Russian sovereign wealth fund, which plans to spend a total of 1,000 billion roubles to buy local shares; the possibility of several companies buying back shares; and the possibility of local investors on the buy side due to runaway inflation, could also provide a major boost. However, more than three quarters of the public share of the Russian market is foreign-owned, so the exclusion of foreign players – who would presumably put strong selling pressure on the market – will create significant distortions in market prices, so that the current share prices do not reflect either the real price of shares or the true value of companies.
According to some market expectations, Russia is planning to split the Moscow Stock Exchange – similar to China’s A and H shares – creating a separate market for local and foreign investors. In this case, there could be two different prices for the same share, creating a significant discount in the market available to foreigners.
As a result, despite the reopening of the Russian market, the market access of Aegon Hungary Investment Fund Management Co. (Investment Fund Manager) to the Russian equity markets is still not guaranteed, and therefore the sale or redemption of investment units cannot be carried out due to reasons attributable to the Investment Fund Manager.The conditions for the resumption of continuous distribution of the Aegon Russia Equity Investment Fund are still not met.
Our previous announcements about Aegon Russia Equity Investment Fund you can reach on the following link:
We further inform our Clients that the suspension of the Aegon Russia Equity Investment Fund will not result in any change in the operation and solvency of the Investment Fund Manager.
24 March 2022.
Aegon Investment Hungary Fund Management Co.
The information contained in this communication is for informational purposes only and does not constitute an investment recommendation, offer, investment advice or solicitation. The information contained in this communication may change. Past performance is no guarantee of future performance of the investment funds. Aegon Hungary Investment Fund Management Co. is not responsible for the investment decision and its consequences made on the basis of this information.