Thursday, January 31 2019 13:56

ArmInfo. "ArmSwissBank" CJSC  occupies one of the leading positions in the debt securities market  of Armenia, both as an underwriter and market maker. Considering that  recently, the Nasdaq OMX Armenia Stock Exchange carried out its  rebranding, during which the unpromising refusal from Nasdaq OMX  words  in the name of the exchange took place, and the exchange was  renamed simply OJSC Armenia Securities  Exchange (AMX), I would like  to hope that not everything is so bad. It is still difficult to say  whether this, seemingly, forced step will lead towards any changes in  the organized capital market of the country. Nevertheless, the  correspondent of ArmInfo spoke with one of the country's leading  specialists, with the Director of the Investment Department of  ArmSwissBank CJSC Karen Turyan about what is happening in the market  today, what are the trends of its development.

Mr. Turyan, how would you characterize the current state of the  Armenian capital market? Why, in your opinion, the function of  stimulating the economic growth through the capital market is not  developed?

By saying the capital market, we first of all mean not only the bond  market, but stocks as well, which we don't have, and which are not  foreseen in the near future. Because it makes no sense to accumulate  a large amount of money for the industry, as it can be stated that  there is no as such in Armenia. I am not talking about the  manufacturing industry, but about engineering, chemistry and other  industrial sectors. While for other areas, joint-stock companies are  practically not needed. That is, in fact there is no  capital market  as such practically operating in Armenia. There is a debt securities  market, represented by corporate and government bonds, which is in  the same unenviable situation in which our whole society is. This is  neigher good, nor bad. We have what we have. There must be  development, which, unfortunately,we still lack .  And today, we are  still "spending" by inertia what was created in Soviet times, in  Soviet Armenia.

But for economic development in today's realities, government bonds  do not play a special role ...

Government bonds can play a significant role if the government knows  where these funds should be invested. Money is not a goal, but serves  as a means of achieving this goal. The state should have at least a  five-year development plan. But there are no global projects as such.  Although there should have been. For example, the state could borrow  money on the security of government bonds for the implementation of  specific projects.

In addition, there are Eurobonds in the market, issued in dollars  with a maturity in 2020 and 2025, which are also very interesting if  considering from the point of view of investment.  So do you think  that the capital market does not fulfill the function of stimulating  economic growth because of lack of large projects?

Naturally. There are two options - you can borrow money, <spend>  it,  and GDP growth will be ensured through imports. But it is also  possible to invest these funds into a large project, to build  something, to change, the return on which will be noticeable for the  state in the medium and long term. But we still do not see this.

And with the full introduction of the funded pension system, in your  opinion, is it likely that any changes may occur in the Armenian  capital market?

When there will be additional money - the first and easiest  development scenario is an increase in domestic public debt. I guess  the state will borrow more under its dram bonds. But ideally, the  government should have a 5-year, 15-year development plan, on the  basis of which the relevant bonds will be issued, it will be possible  to set u a certain  sovereign fund, where both individuals and legal  entities can invest money.

But activity on the capital market is actually observed in terms of  corporate bonds, although even here from the moment of launch, a  decline in profitability has been recorded to this day (from about  10% to 5%).  Could this lead to a reduction in corporate bond market  participants? If not, what turn of events should we expect?

Ultimately, we have this very result. Because now there are no new  trenches. The yield on bonds in Armenia is rather low. If the Federal  Reserve has set rates at 2.25-2.50%,  short-term government bonds are  quoted at a repayment rate of about 6%in Armenia,,corporate bonds  also have low yields, which, I believe, will remain at this level.  This will continue until the Fed raises rates, which will lead to an  outflow of capital or the situation will continue until long-term  financing projects appear in Armenia.

In your opinion, will the rebranding of the NASDAQ OMX Stock Exchange   lead to changes in the capital market?

The changes will affect the activities on the platform itself, which  will be more consumer-oriented, because now it is very difficult to  work with the existing one. A stock exchange is just a platform  connecting intermediaries, creating the conditions for free trade and  the formation of quotations. It may become easier to work, but no  more results should be expected. After all, only real projects lead  to an increase in the number of issuers and market activation.

And how, in your opinion, will the bond market of Armenia develop in  2019?

I believe that the state will rapidly increase its domestic debt. The  Ministry of Finance, in turn, hopes to issue a large tranche of  10-year bonds, plus in the arsenal there are bonds with a 30-year  maturity. In any case, the market still remains. Demand for dram  bonds from banking institutions and individuals will maintain. In  particular, it is worth noting that we also have individuals who hold  their deposits in government bonds. The market is very small, but  there is confidence in it. And then we'll see.

And in conclusion, I would like to talk about the plans of  Armswissbank for 2019. What projects has the Bank planned for  investment banking? How many bond issuers have already managed to  serve as an underwriter and market maker, and how many applications  for new placements have already been received?

Last year we were quite active. And today the bank has so far no  plans to issue securities. There have been no applications for  placement of bonds by issuers either.

In general, the year 2018 was very difficult and politically  volatile. However, it did not affect  the economy of Armenia, I don't  know whether this is good or bad.  After all, first of all political  events influence the financial system that works, and the financial  system works when there is industrial development. In such realities,  any political event will automatically be reflected in changes in  interest rates and other indicators.  But when we "squeezed" to the  end, and there is nothing left to "press", then only some  catastrophic situations can have a tangible impact. There are n such  situations, and I hopethere will not.