Ukraine’s equity market rebounds on election results

Ukraine’s equity market has responded positively to the results of the parliamentary election on Sunday, October 28.

Over the past two days, the market has rebounded 15%. Russia’s Sberbank says market sensitivity is skewed to upside surprised, since the there is a “huge amount of negative expectations priced in.”

The bank adds there is very limited downside potential, unless any “serious hiccups” happen in the recovery process of major economies.

However Aivaras Abromavicius, partner and senior adviser at East Capital, notes despite the rebound, the market has had very low turnover.

Following the election, he expects investors to focus on what happens to local currency.

He says: “In the light of weaker neighboring currencies versus US dollar and also amid weak global prices for Ukraine’s main exports (steel and fertilizers), market participants are expecting 10-20% devaluation within the next 12 months.”

This is, however, not dramatic compared to a devaluation of 60% at the end of 2008, he adds.

Sberbank agrees that mid term sentiment will continue to be overshadowed by the remaining uncertainty regarding the timing of devaluation and its magnitude, which will keep a hold on the inflows necessary for any sustainable rally in Ukraine.

Year to date, Ukrainian stocks are down 42%. This disappointing performance this year is second only to Cyprus.

Sberbank says: “Good news on the corporate earnings front and the approaching removal of uncertainty associated with the parliamentary elections could provide a spark for more optimism this week, but this positivity is fragile enough to cool off easily if material breaches of election protocol arise.”

Abromavicius notes no serious violations have been reported during the voting, but “counting is key.”

He said: “If we don’t see violations there, the result is obviously going to stand. There have been lots of systematic violations during the election campaign, however, which was very fierce and rather dirty.”

But the result of the election was not a surprise for anyone. According to the partial results and exit polls, the ruling Party of Regions came in first place.

So far the Central Election Commission has counted 63.2% of the ballots and the ruling Party of Regions (led by President Yanukovych) leads with 34% of the votes.

Abromavicius believes the focus will now shift to the upcoming presidential election in 2015.

Ivan Tchakarov Renaissance Capital’s chief economist for Russia and CIS, said this year’s elections are “not the ones that matter” and should be viewed more as a “dress rehearsal for the 2015 presidential election.”

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