Humans are not the only casualties of war. Ukraine’s notoriously lowly traded, low-liquidity stock exchange is also suffering, awaiting a decisive victory by the nation’s military over Kremlin-backed separatists.
“Money and war are hard to combine, especially if this is about investing money in stocks,” said Dmytro Tarabakin, managing director at Dragon Capital investment house.
Brokerage accounts with the Ukrainian Exchange, the nation’s leading equity platform, dropped from Hr 300 million in early 2011 to Hr 37 million now.
But Tarabakin is able to envision a brighter future.
If Ukraine charts a pro-European course in politics and economics, following the International Monetary Fund’s prescriptions, the Ukrainian Exchange index will quickly grow as much as 50 percent within a year, said Tarabakin, who has been trading equity at Dragon since 2000.
As of now, Dragon Capital’s equity portfolio is equally divided between local companies’ shares traded on the Ukrainian Exchange and on European stock markets – through a Cyprus-registered vehicle. However, usually the company bets harder on Europe-traded stocks. “In Ukraine, we beat the UX (Ukrainian Exchange) index,” the equity trader said.
Aircraft engines producer Motor Sich, electricity generators Donbasenergo and Centrenergo, Raiffeisen Bank Aval and oil extracting company Ukrnafta are key options for investments, according to Tarabakin.
He says Dragon conducts 30 percent of the UX deals, while up to 85 percent of the stock traded locally are held by foreign investors. Shares of other companies are quite risky since they’re either non-priority units of larger holdings or their production capacities are located in the Donbas, currently suffering from Russia-supported separatism.
The stock market will mostly depend on Ukraine’s overall economic performance, Tarabakin adds, while higher IMF-backed energy tariffs will not improve the positions of energy generators, since coal prices will also increase, making electricity production costlier. The weaker hryvnia brings bigger revenues to exporters but smaller ones for banks. Moreover, government’s intention to modernize Naftogaz, state-owned gas and oil monopoly, might have a direct impact on Ukrnafta, its oil-focused subsidiary.
The introduction of double listings – an opportunity for Ukrainian companies to hold public offerings both on the local and foreign stock markets – is crucial, as well as an option for local investors to place capital in foreign-traded Ukrainian companies without transferring cash abroad.
Moreover, bringing new derivatives – such as futures on gold and hryvnia-dollar currency pair – would make investors’ lives even better. Meanwhile, Tarabakin expects the National Bank of Ukraine to be a much more active participant of the local financial markets.
Regarding personal investment decisions, he sees keeping a third of capital in bonds or banking deposits, a third in non-volatile equity and another third in risky, but promising equity as a perfect portfolio.
In March, Tarabakin wrote a letter to Prime Minister Arseniy Yatsenyuk expressing interest in taking a senior position at the Securities and Exchange Commission or State Property Fund. He is still waiting for an answer.
In that letter Tarabakin shared his views regarding the sale of state-owned assets which he sees as critical for the country’s economy, since the government is not able to run them effectively. “Let’s take Ukrzaliznytsya, Ukrnafta or Oshchadbank and make a cake out of it that everyone would want to eat,” he says.
The government should hire experienced managers to prepare companies for privatization and motivate them with an option to purchase up to 5 percent of company’s shares after it goes public. “They should set their goal at holding an initial public offering in, let’s say, two years – on both the London and Ukrainian exchanges,” he explains. The state does not need more than a 51 percent stake in these giants.
Dragon is considering obtaining a license for commercial banking. “In terms of shareholders’ equity, Dragon Capital would be among the top Ukrainian banks,” emphasizes the investment house’s managing director and adds that investment banking departments could be effective revenue sources for local banks that are more focused on loans and deposits.
Tarabakin, 40, who graduated from Kyiv-Mohyla Academy and studied finance at Roosevelt University in Chicago, sees the investment banking career as an option for those who are ready to work from 7 a.m. – 11 p.m. and devote weekends to reading reports of Goldman Sachs or UBS.
As one of the Dragon Capital’s founders, his salary – like others in the company’s revenue-making departments — depends on personal performance. “If you complete a plan by 100 percent – you get 100 percent of your salary. If you do 80 percent of a plan – that’s exactly how much of your salary goes to you when the month’s over. And with no profits, your salary won’t rise above 50 percent,” he explains.
Kyiv Post associate business editor Ivan Verstyuk can be reached at [email protected]
