STOCK MARKET GROWTH SLOWS IN UKRAINE.

Following an impressive 50-percent spurt in the first quarter of 2000, growth in the index of trading on the Ukrainian stock market in Kyiv cooled to a much slower 5 percent during the second quarter. Growth in shares traded at the PFTS, the main trading floor of Ukraine’s stock market, slowed due to the combined effects of reduced public borrowing and declining foreign reserves. Investor confidence was shaken by Ukraine’s continued poor external creditworthiness, inflation fears, and high risk in the energy sector. The National Bank of Ukraine’s (NBU) current lack of hard currency is largely a result of Ukraine’s failure to reach an agreement with the IMF. These factors may have to be addressed before the robust market growth can resume.

Ukraine’s investment environment has improved, however, thanks to the introduction of a new program protecting minority shareholder rights. This program was formulated by the State Commission on Securities and the Stock Market, which supported an appeal by minority shareholders in the Stirol Joint-Stock Company to have the right of first purchase of additional shares issued by the company. The company had intended to bypass minority shareholders in issuing new equity, which would have diluted minority shareholder value. This program can be viewed as favorable for the stock market as a whole, because foreign portfolio investors are unlikely to enter the market until small-scale Ukrainian investors become more active. If resident and foreign investors take advantage of these improved conditions, and if the government and NBU can ensure macroeconomic stability through shoring up reserves and finalizing an IMF deal, then the stock market can look forward to resumed growth (International Center for Policy Studies, Ukraine Economic Survey, July 2000).

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