European Union flags and a Ukrainian flag flutter outside the EU Commission headquarters in Brussels, Belgium, February 24, 2025. REUTERS/Yves Herman/File Photo
LONDON: One of the most popular emerging-market trades around Donald Trump’s return to the White House is stumbling.
Ukraine’s dollar bonds have handed investors losses of more than 10% so far in 2025, the worst showing among emerging and frontier markets, as the prospect of Trump making good on his promises and brokering a peace deal dim.
That’s a stark turnaround from their gains around the turn of the year when ceasefire bets made Ukrainian debt a top performer – almost doubling the price of some bonds since an August restructuring – and lifted markets across Eastern Europe.
While investors aren’t giving up on a deal, they’re tempering their optimism.
London-based hedge fund Frontier Road prefers exposure via corporate bonds, which it says are less vulnerable to geopolitical shifts.
Bank of America Corp still has an overweight recommendation on Ukraine’s foreign debt, but warns of “downside risks” as the fighting drags into its fourth year. Morgan Stanley sees hostilities persisting through 2025.
“The market is back around levels seen before Trump’s election,” said Viktor Szabo, an investment director at Aberdeen Investments. “The promise to deliver peace a day after inauguration was met by the reality that Putin doesn’t want peace.”
Trump floated the prospect of face-to-face talks between him, Russian President Vladimir Putin and Ukraine’s Volodymyr Zelenskiy earlier in the month in Istanbul.
Rather than attending in person, Putin sent a low-level delegation instead, with the result that only Zelenskiy went to Turkiye.
For Eastern Europe more broadly, meanwhile, the reasons behind the U-turn in the Ukrainian bond market are why bourses from Warsaw to Budapest have posted some of the biggest increases worldwide. — Bloomberg
