KYIV’S OVER-THE-COUNTER STOCK MARKET RECOVERS FROM THE RUSSIAN FLU.

1999 proved to be the best to date for the PFTS over-the-counter securities market in Kyiv. Trading volume on the PFTS–Ukraine’s most popular securities system–surged to one billion hryvnya (US$200 million) and the share index almost doubled (Kyiv Post). Despite the increases, however, the PFTS exchange is still relatively small. Moreover, it must share investors and new issues with such competing exchanges as the Ukrainian Securities Exchange, the Kyiv International Securities Exchange, and the Ukraine Inter-bank Currency Exchange. Two additional exchanges operate also outside of Kyiv, in Donetsk and Dnipropetrovsk.

While the state offers shares in privatized companies on most of these exchanges, the PFTS is the only Ukrainian market to offer continuous secondary trading in already issued securities. By the end of 1999, the shares and bonds issued by over 400 companies have traded on this market. Since many of the issues are very small and illiquid, trading is concentrated on the shares of the Ukrainian blue chips, mainly power generating and metallurgy companies.

The PFTS’s turnaround in 1999 seems even more impressive in light of the exchange’s disappointing performance in 1998. Battered by the effects of the Russian crisis and the flight of investors from many emerging markets, the PFTS index dropped from 79.7 in January to 21.6 in December 1998. Although the index grew by 72 percent to 40 during 1999, it still did not recover to pre-1998 levels. The market’s surge then continued into the first months of 2000. This in turn reflected President Leonid Kuchma’s re-election last fall, and the subsequent appointment of Prime Minister Viktor Yushchenko’s market-oriented government.

Although the PFTS’s growth in 2000 may reflect investors’ confidence in the new government’s commitment to implementing market reforms, the future of the exchange could depend to a large degree on the privatization of the most attractive Ukrainian enterprises that are still in state hands. An offering of shares in Ukrtelecom, Ukraine’s state-owned telecommunications monopoly, is seen by many market watchers as a possible way to broaden the market and increase its liquidity. Ukrtelecom’s privatization is, however, opposed by a large group of deputies to the Verkhovna Rada, who consider the company a “crown jewel” and find it difficult to let it slip from under state control.

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