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Since the beginning of this year, 2018, a number of large investors unexpectedly began to sell their treasuries (the most liquid government bonds in the world of the US Treasury). The fact is that alarmed investors, fearing inflation and the Federal Reserve System (FRS) rate increase by 25 points (which might lead to sharp changes in the dollar rate), began to act on the lead before the unrest in the US debt market. The treasuries profitability at the level of 2% per annum does not satisfy the investors.
Accordingly, this market will inevitably significantly go down soon, influencing the US dollar. We must admit that the Administration of President Donald Trump, judging by the latest decisions, needs a weak dollar in order to increase the competitiveness of the American enterprises and companies in foreign markets. But this factor promises more optimistic exchange rate for our hryvnia for the coming months. The financial and economic block of Ukrainian Cabinet should take advantage of this favorable situation for the domestic stock market, encouraging financially wealthy citizens to invest in shares, investment certificates and corporate bonds of national issuers, thereby increasing investments in f the real sector of Ukraine’s economy.
That is why it is important to maintain the positive dynamics of the Ukrainian joint investment market and the securities market. According to the Ukrainian Association of Investment Business, during the last month, the indices of the national stock market grew steadily. According to the results of February 2018, the index of the "Ukrainian Exchange" increased by 5.83%, and the index of the stock exchange "First Stock Trading System" has gained additional 3.48%. Also, as of February results, the investment funds with public offering was distributed in the following order: the closed joint investment institutes (ISI) sector with an indicator of + 3.8% came to the first place, open-end funds + 1.74% came the second, and the sector interval ISI + 1.53% came the third.
The main thing now is to avoid undermining the position of the Ukrainian stock market. After all, today's problems are also the echoes of the old wrong policy, which led to a significant narrowing of the securities market and consequently forced to actively and constantly continue to borrow foreign currency outside Ukraine. So what? Our domestic market for joint investment has not been developing, but the financial authorities strongly piled up expensive loans in the foreign currency. As a result, only in 2018-2019, Ukraine expects multi-billion payments on foreign debts in dollars and euros. So, in the current year 2018, this is about 4.5 billion dollars, and in the next 2019, the size of payments will approach $ 7 billion.
And if the risks of the Ukrainian debt market remain rather high, nevertheless they are not very worried about the foreign investors and local asset managers. The risks of the national market infrastructure associated with the possession and storage of securities, the re-registration of property rights in the National Depository of Ukraine, transactions, and settlements on the stock exchanges of Ukraine’s exchange and PFTS Stock Exchange are more dangerous for the latter. Therefore, we need to minimize the risks of the infrastructure of the Ukrainian securities market. Only then we could see the new flows of long money of the strategic investors.
In the meantime, the share of corporate bonds of Ukrainian issuers in the portfolios of our financially wealthy citizens has fallen, but the volume of purchases of our 3 and 6-month domestic government loan bonds by foreign investors has sharply increased. In January-February, it led to the fact that our debt market has obtained sufficient funds to buy government bonds with a high yield of 17% per annum or more. In 2018, Ministry of Finance of Ukraine plans to place Eurobonds for a total of $ 2 billion.
In this regard, the National Bank has reported: "Taking into account the government's placement of government bonds for a total of $ 2 billion, capital inflows on the financial account will grow to $ 7.1 billion in 2018. But in 2019, net capital inflows will decrease to 4, 1 billion dollars because of peak payments on public sector debt." Briefly, we expect money inflow from the stock market in 2018, although we must honestly admit that in our country, unlike the mass segment of the securities market, rich citizens still prefer to keep money in the foreign currency. What else is troubling here? The decrease in foreign financial institutions lending for the Ukrainian enterprises. And the opportunities for refinancing are becoming increasingly problematic and rapidly declining.
In conclusion, my forecast for possible trends in the stock market of Ukraine is such: the market will not survive one more correction by the end of 2018 because if, for example, the US stock market grows or falls by 10%, ours grows or drops by 18-20 %. The usual ratio is somewhere 1.5. And if there are some significant corrections and strong unrest, we fall 2 times lower than the strong markets of the developed countries. Most likely, we are expected by the so-called "roller coaster," similar to those in the stock markets of other developing countries. However, for us, this would be more dangerous than for the others.
This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.