Ukraine’s stock market was the world’s second worst performer after that of Cyprus last year, slumping by 35%, but can get a boost from a potential new loan from the International Monetary Fund, according to Stockholm-based asset manager East Capital.
Ukraine’s economy, where the main stock market players are mining, energy, engineering and financial firms, weakened considerably in 2012 with a drop in exports, poor industrial performance and low investment.
The country’s foreign currency reserves plummeted by 23% to $25bn, a sum barely sufficient to cover three months of imports, East Capital says.
Economic reforms were halted in anticipation of October’s parliamentary elections.
“There has hardly been any interest in Ukrainian equities from foreign investors,” says Milda Normantaite, an analyst at East Capital, an Eastern Europe- and China-focused company with 3.8bn euros under management.
Ukraine is negotiating a new loan from the IMF and is likely to accept the Fund’s tough conditions because it “does not have many other alternatives”, Normantaite says.
“The country must repay nine billion U.S. dollars this year, including six billion to the IMF. If it is to retain credibility on the international financial markets a deal with the IMF is required,” she says, arguing that the loan agreement is likely to be signed this month.
The IMF is making its loan conditional on higher gas and heating prices for the population, a flexible currency exchange rate, and a revision of the 2013 budget.
Though accepting the IMF’s terms would be an unpopular move for Ukraine’s government to make, it “may have been forgotten when the presidential election comes around again in two years” while parliamentary elections are no longer a threat, Normantaité says.