The value of shares of Ukrainian and Russian companies dropped dramatically due to the escalation of the conflict in the east of Ukraine

Photo: Reuters

After the announcement of the President of Ukraine Petro Poroshenko about “deployment of Russian troops to Ukraine”, the index of Ukrainian shares at UX dropped by nearly 9% by 2:30 pm. Later, the index started to grow back and as a result it fell to 6.2%. By the end of the day, the index amounted to 1,174.97 percentage points, which is the lowest indicator over the past three months.

All down

Absolutely all index shares dropped in price yesterday. The prices of shares of AzovStal saw the greatest decline of 12.9%, Raiffeisen Bank Aval – 7.5% and DonbasEnergo – 6.6%.

Along with the Ukrainian index, the Russian index also dropped – its maximum decline over the day amounted to 2.3% since the start of the trading session. Taking into account the fact that the Russian market is much more liquid than the Ukrainian market, this is quite a significant figure.

Since the start of the year, the Moscow Interbank Currency Exchange (MICEX) has already lost nearly 6% due to the military aggression on the part of Russia. For comparison, the Ukrainian index of shares has grown 30% since the start of the year. “The decrease in the prices of Russian securities is primarily due to financial sanctions. The access of Russian companies to cheap capital has been closed,” says Investment Director at Finart Yevhen Pentsak. Yesterday the shares of financial institutions – Sberbank of Russia and VTB considerably dropped – the prices of shares of these banks fell nearly 4%.

While the indicators of the Ukrainian and Russian stock exchanges are declining, the western indexes are reaching new heights. Two days ago the S&P 500 index registered a new high of 2000.12 points.

Substitution

The Ukrainian stock exchange has been at its lowest level for several years. The prices of shares never managed to return to the high indicators of 2007 and this trend will not likely happen in the foreseeable future. The main blue chips on the Ukrainian stock market are in the eastern part of Ukraine. These companies are suffering from the military actions more than others. For instance, Alchevsk Metallurgy, which is a part of the Industrial Union of Donbas, suspended its operation on August 16 due to the shortage of raw materials and unstable power supply. On August 27, information appeared that the Yasynovskiy Coking Plant, which is a part of the DonetskStal Group, suspended its operation due to the shortage of coking coal for production of coke due to the destruction of its infrastructure and the cutting of water supply as a result of the combat actions. As a result of shell shooting, lime and refractory workshops at the Yenakiyevo Metallurgical Plant controlled by the Metinvest Group were suspended. Converter and power supply workshops and railway transport departments were also seriously damaged.

New blue chips should appear in Ukraine. After the end of the war and Ukraine’s integration into the EU, direct investors will be the first to come to Ukraine, says member of the National Financial Services and Stock Exchange Commission Serhiy Biryuk. That is why the index basket will most likely be reformatted. The shares of the largest Ukrainian companies will be traded on major European exchanges. “Medium-sized enterprises will be able to issue securities in Ukraine since in the medium-term, our market will be affected by the shortage of free resources for investments,” says Biryuk.