Investors are selling Ukrainian stocks due to the fear of war

The elections in the unrecognized DPR scared off even the last of the optimistic investors

Photo: Reuters

The prices of Ukraine’s most liquid stocks took a serious nosedive at the start of November. On Monday the index of the Ukrainian Stock Exchange (USE) calculated on the basis of stock quotations of ten domestic companies fell by 2.1% to 1,090.85 points and the PFTS index fell by 1.1% to 432.52 points.

Who’s going down?

On the first trading day of November the price of stocks of the Yenakievo Metallurgy Plant on the USE fell 4.86%, Donbasenergo (-4.54%) and the Alchevsk Metallurgy Plant (-4.47%). The main facilities of all three plants are located in the anti-terrorist operation (ATO) zone.

The WIG-Ukraine index, which the Warsaw Stock Exchange calculates on the basis of stock quotations of nine Ukrainian enterprises, fell 1.04% to 269.48 points. The leaders in decline are the stocks of Milkiland (- 5.28%), Coal Energy (– 4.82 %) and Astarta (– 4.25 %). This index fell by 46% since the beginning of the year. The prices of certain securities continued to fall yesterday. Based on the results of the trading session the USE index grew by a mere 0.01%, while the PFTS index fell by 1.6% and the WIG-Ukraine index – by almost 3%.

One of the main reasons for the drop in prices of steel is the fear of investors regarding the elections that were held on Sunday on the territories of the self-proclaimed LPR and DPR. “In essence, an escalation of the conflict is being observed rather than its settlement as envisaged by the meetings in Minsk. As a result, after the session the value of the majority of liquid securities ended up in the minus,” says Risk Manager of Dragon Capital Dmytro Mykhailusenko.

In the opinion of Chairman of the Board of the Ukrainian Inter-bank Currency Exchange Anatoliy Hulei, investors could have been scared off by the news about the deployment of additional Russian military forces in the Donbas region. “I believe the last illusions have been dispelled as securities are being dumped,” he emphasized. Today there is a risk of an escalation of the conflict and its transition to a more active phase, says leading trader of the ART Capital investment group Volodymyr Volkov. He says this is a determining factor for investors at the moment. For example, yesterday the agrarian group Agroton announced that is shutting down its poultry business in the Luhansk oblast due to the military conflict in the region. This will mean losses of more than US $15 mn for the company.

Gloomy prospects

“It can be said for certain that the stocks of all companies operating in the ATO zone will not see growth. Only Tsentrenergo, Motor Sich and Ukrnafta will show a growth in their value. But I am more inclined to say that soon the securities of only three or four companies will be traded on the market,” Asset Manager of the Nettrader investment company Yuriy Bazhinov laments.

As for securities that are circulating on foreign stock exchange floors, expert at Ukrsotsbank (UniCredit Bank) Andriy Prykhodko says agrarian vertically integrated companies such as MHP, Astarta and Kernel have the greatest chances for growth.

Prykhodko believes that mid-sized companies specializing in only one segment of the market, for example, the growing of grains will not be very interesting for investors. “Capitalization of many mid-sized companies such as Sadovaya, Agroton, Coal Energy and Vesta collapsed, which brought losses to investors,” Prykhodko specified. He added, “The absence of vertical integration makes a company overly dependent on the fluctuation of grain prices, while an integrated company can export raw materials and products for processing depending on the market climate.”