UKRAINE AND BELARUS STOCK MARKETS Comparison not in our favor

A few days ago the Prime Minister of Ukraine Valery Pustovoitenko wrapped up negotiations with Belarus leaders. Pustovoitenko suggested signing a ten year economic cooperation program during his visit to Belarus.

Analysts predict, that in the near future Belarus will join the list of countries with dynamic development. GDP stopped falling in 1995, in 1996 it increased 2.6%, and in 1997 this index was already an unprecedented 17.6%. In 1998 it is predicted to reach 10%.

64% of GDP is produced by wholly state owned enterprises. However, this does not mean that privatization is not an official priority. The privatization process in Belarus has some differences from its counterparts in Ukraine and Russia. Free circulation at the registered privatization checks (RPCs) is limited by legislation and intermediaries are under strict control. As a result, people use their checks to buy stock in the enterprises they work for.

The Belarus government prefers selective monetary privatization by attracting strategic investors. For this purpose, huge enterprises are selected, where the amount of shares sold for RPCs is relatively small. But the proportion of shares sold for money is small, and the state basically keeps control of the enterprise. And we should give it credit (based on Ukrainian experience, where privatizationbrought neither money to the state budget coffers nor a feeling of ownership to people), it is not that bad, considering that both Ukraine and Russia have realized the advantages of monetary privatization. The sale of big share packages with a poorly developed stock market brings the state no profit and does not solve the problem of ownership. Serious investors come only to promising markets.

However, big state enterprises are actively being converted into joint stock companies and share packages are being sold to investors. All this fosters the creation and development of the new Belarus stock market. But due to its low level of development, it is undervalueded.

One can conclude based on the Belarus experience that the state can be an effective owner. An example is the success of such industrial giants as the Minsk tractor plant, which now manufactures twice as many tractors as all Russian plants combined and television giants such as Horizont in Minsk and Vityaz in Vitebsk.

Nevertheless, it should he kept in mind that the Belarus stock market has only begun to be formed - only 19 agreements on shares totaling 1.5 million Belarus rubles have been signed on the Belarus stock exchange. There were also 42 agreements on domestic short-term bonds (DSTB).

The profitability of Belarus DSTB including inflation is usually less than of Russian domestic bonds. In addition, the Bank of Belarus issues its own short-term bonds (SB) for supporting its activity with the money attracted. The capitalization of the SB market is insignificant. Belarus also issues municipal securities. Minsk first issued municipal bonds in 1997.

However, the corporate sector of the Belarus stock market is the most promising. It is hard to give correctly estimate its general capitalization due to its low level of development level. According to some estimates it is $100 million. That is much too low and shows that shares of Belarus enterprises are highly undervalued. Thus their percent increase may beat all records set by Russia's most liquid securities.

Which enterprises are most attractive for investment in Belarus or, in other words, which stocks could become Belarus blue chips under favorable conditions?

Belaruskaly of Soligorsk has a monopoly in manufacturing potassium fertilizers. The most of its products are exported to other countries. The enterprise manufactured over a half of all potassium fertilizers in the former Soviet Union. This enterprise has strategic significance for the country and is run by the state. However, in case of its privatization, its stock should sell very well.

Unlike Ukrainian oil refineries, the Belarus plants in Novopolotsk and Mozyr are loaded with work. Leading oil companies from Russia are very much interested and actively participate in their privatization.

Belarus machine building plants are better off than those of any other CIS country. The automobile giant Minsk Automobile Plant produced 6,100 cars in the first half of 1997.

In general, Belarus's rise in industrial output is unique. For instance, a real construction boom started in Belarus in the first half of 1997 reaching 40%, which is the best proof to its economic recovery. In the first half of 1997 the television production was up 55.2%, tractor building 52.2%, building materials manufacturing 35.8%, wood processing 31.0%, paper manufacturing 30.8%, ferrous metallurgy 30.7%, and machinery 25.5%. No other country in the world had such indexes in 1997. In addition to this, 82% of Belarus enterprises made profits in 1997.

The conclusion to all this is inescapable: corporate securities analysts have much to examine on the newly created Belarus market.