CIS macro and credit: When in doubt, play to your strengths

Country views

Over recent weeks most of the central banks in our CIS coverage space worsened their CPI outlooks and took a more hawkish stance, either opting to postpone a cut in the key rate, or to do an outright off-consensus hike. While there are some domestic country-specific stories behind this, it is also clear that the growing global uncertainties call for reinforcement in the capital accounts through higher real rates.

Armenia. Risks include a lack of fiscal buffers, ties with Russia, and overvalued currency. Opportunities stem from a potential de-escalation with Azerbaijan and the development of gold mining projects.

Azerbaijan's economic activity is expected to moderate in 2025, with ample fiscal buffers allowing the continued support of investment-driven industries despite pressures in oil production and a cautious monetary policy.

Kazakhstan remains heavily dependent on fiscal policy, which is now heading towards a VAT hike in 2026. For the near term, we are constructive on KZT thanks to state FX sales, but medium-term prospects are less certain.

Uzbekistan is undergoing long-awaited fiscal consolidation which restrains growth amid limited room for monetary easing. But its potential to ramp up sales of gold could be an opportunity given the growing global uncertainties.

Sovereign credit views

The technical picture looks good, with a somewhat unusual trend for the region of most issuance out of the way early in the year, outside of Kazakhstan. However, spreads in general are fairly tight, leaving few attractive opportunities for significant tightening. We would view the region as a decent diversifier and well insulated against global trade tensions, with the potential to also benefit from positive geopolitical developments.