Ukrainian debt is now one of the hottest emerging market investments as Russian setbacks lift Kyiv's economic prospects

Jason Ma
Tue, June 27, 2023 

Ukrainian President Volodymyr Zelenskyy.Pool/Getty Images

Ukrainian debt is one of the hottest emerging-market assets as Russian setbacks lift Kyiv's prospects.

Ukraine's sovereign dollar bonds have returned over 30% in the second quarter, beating other emerging markets, Bloomberg data show.

And Ukrainian debt warrants tied to GDP growth have jumped 48% in the last three months.

Ukrainian debt is now one of the hottest areas of emerging-market investing as Russian setbacks lift Kyiv's economic prospects.

Ukraine's sovereign dollar bonds have returned over 30% in the second quarter, beating other emerging markets, Bloomberg data show.

The gains were also concentrated this month, which saw the start of Ukraine's counteroffensive. While reports indicate slow progress, Ukraine's military has made steady advances, with the bulk of its Western-trained and equipped forces still waiting to deploy to the frontlines for a decisive surge.

Corporate bonds in Ukraine also posted the best returns in their category, and Ukrainian debt warrants linked to GDP growth have seen some of the biggest returns among emerging-market assets, according to Bloomberg.

The report said $3.2 billion in August 2041 notes soared to 40 cents on the dollar this week from 27 cents in late March.

In addition to its counteroffensive, Ukraine's fortunes also appeared to grow brighter after the Wagner Group's short-lived mutiny over the weekend.

The Kremlin has defused the crisis for now, but Yevgeny Prigozhin's band of mercenaries has shaken confidence in President Vladimir Putin's ability to continue his war on Ukraine — not to mention his hold on power.

Meanwhile, hopes for Ukraine's economy have improved lately. Last month, the International Monetary Fund raised its forecast on the country's growth this year to a range of 1% to 3%, up from a prior range for a 3% contraction to 1% growth.

That came after waves of Russian attacks on Ukraine's infrastructure and other civilian areas, the IMF noted as part of its review on a $15.6 billion loan program for Kyiv.

"Despite this, the Ukrainian economy has shown remarkable resilience – economic activity in the first quarter rebounded strongly, as the energy system rapidly recovered from attacks on critical infrastructure, foreign exchange markets stabilized, and inflation started to decline decisively," the IMF said. "A stronger recovery is expected as the economy progressively adapts to war conditions."