Foreign investors need answers to Ukraine's major political issues

Author : Olexandr Honcharov

Source : 112 Ukraine

Ukrainian transition economy restrains the arrival of large investors to our securities market
10:00, 6 November 2017

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Even reaching peaceful agreements in the anti-terrorist operation zone in the near future will not help significantly raise admission due to its short-term nature. Fundamental problems of the Ukrainian transition economy will restrain the arrival of portfolio investors to our securities market until the new composition of the Cabinet declares its readiness to start real reforms (tax, budget, judicial, administrative). If we admit this, large Western and Asian investors will come to us, and index of the Ukrainian Exchange may grow by 30-40% in 2018.

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But the American and Asian "long only" funds and hedge funds filled with private capital do not enter the Ukrainian market. But they will come as soon as they receive answers to the main political questions. At the same time, foreign investors will buy Ukrainian stocks and corporate bonds first. Although the main "trigger" of the rally will be as any good news from the real sector of the Ukrainian economy. For example, according to Chinese investors, among the investment topics comparable to stocks and bonds, both in terms of potential profitability and risk level, we can mention Ukrainian companies in agribusiness, energy and financial leasing.

We want to enter the European Union, however, Chinese investors and exporters are increasingly strengthening their positions in Ukraine, primarily due to European competitors, whose recession forced them to cut their production. This, in particular, concerns manufacturers of household appliances, telecommunications and power equipment, and Chinese investors purchased our government bonds for a record amount of more than $ 6 billion. And now China is one of the most important strategic partners for Ukraine, ranking second in terms of turnover.

Related: Kyiv Investment Forum kicks off in Ukraine’s capital

Of course, it is already obvious to everyone that China is conducting economic expansion into Ukraine. as well as into the EU countries. Only in 2016, China invested $ 170 billion abroad, while last year the Chinese bought 309 European enterprises worth $ 85.8 billion. Chinese Embassy states that for the entire period of China-Ukraine relations, Chinese investments to Ukraine so far have amounted to $ 7 billion (mainly in government bonds). Yes, this figure is too little, so we have a lot of work ahead of us.

We see positive dynamics of the appearance of new orders for 2018, of the new investment projects and new transactions for the sale and purchase of various assets. November 16, 2017 the grand opening of the II Ukrainian Silk Road Forum will take place in Kyiv. A strategic project has been prepared for the creation of an investment and exchange center in Ukraine on the basis of modern technologies of the leading Chinese stock exchange. It includes the corporate investment fund "Asia - Privat Equity Fund"; international commodity exchange market; Ukrainian stock exchange; Ukrainian commercial bank; Ukrainian Association of International Investors. It is necessary to organize activities for a long and sustained growth of the independent infrastructure of the Ukrainian commodity and stock markets.

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Therefore, now we should pay more attention to the financial market of Ukraine. A financial blow may prove to be stronger than a hot local war. The banking system already, as they say, is breathing on incense, because After PrivatBank nationalization, Ministry of Finance became the owner of 55% of this system, and now up to 70% of all non-performing loans are concentrated in state-owned banks (a red line is 40%). Our securities market is also dying.

That is why the dual task of creating a front office to attract joint investments in the savings of financially wealthy citizens in the Ukrainian market and the activation of cooperation with Asian and American investors came to the fore. We need to professionally fight for long money of the strategic investors from China.

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Recently, one investor from China showed me a "hot" message from our law enforcers, who in the middle of last month searched a number of Kyiv enterprises in the case of fraud on the stock exchange. "The buyers of paper holdings were enterprises of the real economy (investment funds, insurance companies) who used them in their criminal schemes," the police said. But, firstly, investment funds and insurance companies do not really belong to the real sector of the economy (just go on Wikipedia, at least: "The real sector of the economy (RSE) is a set of industries that produce tangible and intangible goods and services, except for financial and credit and exchange transactions, which are related to the financial sector of the economy").

Secondly, the so-called "garbage" shares cannot get to the stock exchange, because before they need to go through the listing procedure. And, thirdly, our state regulator, the National Commission for Securities and the Stock Market, has long suspended trading on any Ukrainian valuable security.

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Here a question arises: "Will Verkhovna Rada abandon the current economic model?" My answer is: "This is hardly feasible within the current system of power." It is necessary to change not only the rules of the game, but also the legislators themselves.

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