Konstantin Stepanov, head of investment group Sokrat -

Today, we can find no reason why the stock market should see any rapid rise in 2009, as occurred in 2007, other than speculative investments for individual securities.

The main demand will be observed with respect to liquid securities (blue chips), as investors have already been burned over non-liquid securities, which have plummeted from their peak by more than 10 times. Interest in the Ukrainian market will be very selective, especially against the background of other, more inexpensive liquid markets such as Russia and China. Securities may perhaps be of interest to companies that have been less affected by the crisis and that may increase their market share through the purchase of smaller competitors. Among the most interesting sectors, we single out selected companies in agricultural, the food industry, pharmaceuticals, and engineering. The main problem of the market will remain the extremely low liquidity and the small amount of securities in the free-float, as a result of large companies having engaged in buybacks by redeeming their own shares. Positive aspects may include the launch of new trading platforms, the work of market applications, as well as attracting new clients using new Internet trading services. The attraction of domestic investors will also have a positive impact on our stock market, as it will gradually decrease its dependence on foreign, mostly speculative capital, which comprised about 70% of the total market in 2008.

A difficult macroeconomic situation is expected in 2009. After GDP growth of 7.6% in 2007, growth slowed to 2.1% in 2008 and, according to Sokrat estimates, an 8.4% decline in GDP may be expected in 2009. The main driver of the economy has been and remains industry, primarily metallurgy, forming about a quarter of Ukrainian industrial output and more than 40% of exports in 2008. Therefore, the reduction in the demand for steel on world markets has led to stagnation in the industry, resulting in a 3.1% decline in industrial production in 2008 and a projected decline of 11.6% in 2009. Moreover, following the hryvnia's devaluation by 58% in 2008, the exchange rate is expected to decline by a further 30-50% in 2009.

The difficult macroeconomic environment, high currency exchange risks, expensive credit and political tensions will be the major factors behind Western investors staying away from Ukrainian shares in 2009. But interest in the stock market will return sooner or later. This will only happen, though, once an attractive environment exists on foreign markets (an increase in demand for Ukrainian exports, the return of available credit financing) and once the internal economic and political situation has normalized. Unfortunately, under the current conditions, investment firms are unable to change the course of events and stimulate demand for Ukrainian assets. Therefore, during 2009, a large number of smaller traders will leave the market, leaving behind only larger players that are able to offer customers new services, as well as those companies that can interest clients in carrying out merger and acquisition transactions, of which there will be many in 2009.

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