In September, the ECB and the FRS particularly influenced the global financial market as careful attention was compelled to the results of these meetings.

In the beginning of the month, after a complete quarter of record lowering interest rates, the ECB admitted that the situation kept developing negatively and the decision to lower interest rates further was made. Besides this, at the press-conference, the Head of the regulator Mario Draghi announced that from October the ECB is going to launch two programmes, in fact, similar to American QE, of buying up bonds from the market. This decision was taken positively by market’s participants and contributed to shares indexes growth of the leading European countries.

However, the situation radically changed after the meeting of the FRS, as a result of which the largest part of investors concluded that the cycle of raising interest rates in the USA may begin earlier and may be more aggressive than it was expected before. Moreover, literally on the next day, the ECB conducted one of two auctions (the second one is planned in December) within the frames of the announced in June LTRO (granting long-term targeted loans to banks). However, the demand at the auction was considerably low, which testifies that banks do not have bad liquidity and they are not in a hurry to borrow funds to issue new loans. Therefore, doubts appeared about the efficiency of measures taken by the ECB to stimulate the European economy.

The combination of these factors cooled down passion of buyers, and in the majority of the main stock markets the correction started to take place. Particular strong pressure from sellers was experienced in the markets of emerging countries, where, besides the fall of shares price, a strong fall of the local currency rates to the US dollar took place. As a result, the index of emerging countries shares dropped down by 7.6% within the month. The majority of the developed countries markets (except Japan) if did not go into the negative area at the month-end, then at least lost their growth of the first half of the month.

The stock fund manager did not take any active actions, as in the circumstances of ratchet volatility speculative activity may rather harm than bring positive results. In the mid-term, the opinion on the global stock market remains moderately positive, therefore, the current strategy in the stock funds remains “to keep” leaving some space for tactical decisions to fix yield at certain positions in order to correct the portfolio structure.

In the global market of government bonds in September, the main influence was also exerted by the ECB and the FRS. Direct contrary policies of the two regulators also influenced the government bonds markets both of the developed and emerging countries. The easing policy of the ECB contributed to a stable and high demand for bonds, denominated in euro. In turn, the anticipation of early beginning of the cycle of raising interest rates in the USA resulted in the yield growth of bond of other countries with high investment rating. In turn, the negative dynamics in the stock markets provoked the spread widening and landslide of prices of the bonds with low ratings.

This same sort of situation was witnessed in the global market of corporate bonds. Hence, bond funds with the main currency in USD at the month-end showed falling behind dynamics in comparison to funds with the main currency in EUR.

Only bonds of Russian issuers are standing apart the global trends. During the month, the investors continued to watch the situation in Ukraine and the discussion of the western countries about sanctions against Russia. Uncertain situation around new sanctions did not allow Russian Eurobonds to realise their growth potential within the month. In the middle of the month, after tough negotiations among the EU countries, and in spite of positive news background concerning cease fire and ongoing negotiations with Ukraine, new sanctions were approved. The package of new sanctions provides more active constrains with regard to attraction of financing by Russian state oil and gas companies, as well as limitations regarding the cooperation with Russia in the sphere of oil mining in stranded areas and oil projects in the shelf area and Arctic. The USA supported the EU by launching their own package of sanctions that are similar to the EU sanctions in many aspects. The only surprise and difference from the European sanctions was the ban to American companies to cooperate with Gasprom and Lukoil. It is worth mentioning that there were not any noticeable reactions in the Russian Eurobonds market. The news about the arrest of the controlling shareholder of the company “Sistema” in connection with the holding company JSOC “Bashneft” criminal case influenced the market more significantly.

In the short-term, we are expecting the global bond market to remain sensitive towards anticipated changes in interest rates introduced by the FRS and the dynamics in the stock market. From our point of view, the correction in the stock markets is rather technical and will not be deep, and it limits the risks of further price decrease of corporate bonds, and does not exclude their moderate growth due to narrowing risk premium (credit spread). In the bond sector, denominated in euro, the widening of the EU stimulating programmes may give an additional impulse to price growth.

In the government bond funds of emerging countries, denominated in USD, the manager decreased the amount of long-term bonds with high investment ratings, as being the most sensitive towards the growth of interest rates in the USA.

We continue to keep to the strategy to invest in bonds with high coupon yield and of a reliable profile of issuers.

In turn, the topic of sanctions and the situation in Ukraine are influencing the behavior of Russian Eurobonds market in a lesser degree. This market remains to be oversold and has a potential to grow if radical escalation of geopolitical tension in the region is not resumed. The strategy regarding this market segment is “to keep”, further actions depend on future course of events.