Legal stock market capitulates
The record index decline (7.22-40.62% a day) of the First Stock Trade System, as the principal formal stock market operated by Ukrainian business, resulted from the plummeting stock price of the largest Ukrainian companies on October 24. Thus, Ukrnafta fell by an average of 7.5%; the stocks of electric companies, only recently ranking with the blue chips, took a nose-dive: Tsentrenerho dropped 47.4%, Donbasenerho 40.9%, Dniproenerho 16.7%, Zakhidenerho 12.3%, and even the ever-stable Kyivenerho declined 16.7%.
True, the downfall was not totally unexpected, as the FSTS index had dropped 26.6% since the start of the year, compared to last year’s 41.1% gain.
“That’s called capitulation,” Interfax Ukraine was told by Dragon Capital CEO Dmytro Tarabakin, who added that market operators are losing hope for its revival in the nearest future, so they have to abandon their previous positions. It is clear now, he said, that the government will be unable to protect Donbasenerho from having to sell assets and the same is likely to be true of other companies. In addition, the financier pointed out, “The West is bypassing Ukraine” and this, too, forces market operators to take more decisive steps.
Meanwhile, the State Property Fund (SPU) recently noted a decline in the sales of stocks of enterprises being privatized. Over the past nine months, the ratio of stocks sold and their starting prices has been 14.4%, compared to 16.9% in the first half of the year and 71.9% last year. SPF experts say that this decline is caused by the absence of businesses attractive for investment.
Prior to the stock plunge, professional market operators beat the alarm. The securities market’s coordinating council of the leading self-regulating organizations requested the president on October 24 that he take part in a meeting to discuss the stock market situation: “We would appreciate it if you could give an impetus to the development of the Ukrainian stock market.” The said professional market operators believe it necessary to enhance the stimulating function of the nation’s tax policy with regard to investment, operations with securities, and the attendant revenues. They further believe that this will make it possible to increase market capitalization and liquidity, while improving the overall investment climate. They also requested that the president pay attention to the creation of a new corporate managerial model capable of blocking violations of investor rights, primarily small stockholders.
Oleksandr Sabodakha, CEO of Ukrnaftohaz, the largest registrar of the domestic stock market, told The Day, “The government is not keeping its promise to have the first six energy companies sold to nonresidents. This is the main reason. The stocks of companies privatized earlier dropped because the controlling interest was sold and nobody needed the rest. The same applies to Ukrnafta: 41% of its stock sold. And this is all because of the absence of civilized legislation and conditions for the development of the securities market.”
FSTS press secretary Andriy Kolomiyets attributes the stock market fall to the reduction in the number of securities of highly liquid issuers in free turnover, as well as to the process of shadow privatization already underway in Ukraine by faking bankruptcy. Mr. Kolomiyets believes that the stock market collapse could affect Ukrainian GDP growth, because business performance cannot help but be negatively affected by bankruptcy.
