Investment optimism

As it turns out, the Ukrainian stock market is one of the most dynamically developing and promising markets in Europe, despite its risks and outdated legislation. The metallurgy, banking and real estate sectors are particularly attractive to Ukrainian and foreigners with free capital. An increased interest in the land market is also being predicted. Aija Klaseva, President of Parex Asset Management Ukraine (PAM Ukraine), Believes in Ukraine’s future. She is convinced that risks investments in Ukraine are on the decline, while the attractiveness of the Ukrainian stock market will grow.

KW: Experts say that on the one hand investments into the Ukrainian stock market are profitable, but on the other hand the risk level is high. How risky is it to invest money in Ukraine?

AK: There is more certainly in Ukraine compared with European markets. I would call outdated legislation one of the main risks. The law on joint stock companies still hasn't been adopted. However, there are a lot of positive developments. Political risks, which were relevant some time ago, are approaching zero. Currency risks are gradually decreasing as well. There is good reason to believe that the country's legislation will be harmonized with European standards in the end, because this is an objective and an irreversible process.

Even in present conditions, the Ukrainian market spurs interest and not only among domestic investors. I can say with conviction that the Ukrainian market is very attractive for foreigners and they are actively seeking bridges to get to the market.

KW: What criteria do Ukrainian and foreign investors use when deciding where to invest money and what are the most promising industries?  

AK: Until recently, large clients in Ukraine mostly rely on personal connections with the management of a bank or a fund rather than on objective indicators of their activity. Potential investors have come to the conclusion that they should also be oriented towards objective operation, including its experience and a team of professionals that can guarantee profits for the investor. Besides having banks in Lithuania and Latvia, the Parex group has a bank in Switzerland, branches in Germany and Sweden and representative offices in Bulgaria, Russia, Moldova, Belarus, Kazakhstan and Japan. In all these countries, we have a wide circle of regular customers. Why they can't we offer them to invest their money in promising Ukrainian enterprises? At the very least, we can offer then to invest in the most attractive sectors of the Ukrainian economy, such as metallurgy, coal industry, banking sector, real estate and land market, which is currently being formed.

Speaking about the future, the Ukrainian stock market looks quite promising. The share of the market's capitalization versus GDP is currently 35%. In Poland and Hungary, for example, this indicator is 40% and 37% respectively. Over the first four months of 2006, the trading volume almost exceeded the total volume last year at UAH 11.5 bn. These are only indicators provided by PFTS [First Securities Trading System], which does not take into account trading with foreign clients on depositary receipts.

KW: Does this mean that appearance of a well-known European company on the Ukrainian market is acknowledgement not only of the market's prospects, but an indication that it is a civilized market?

AK: We began working on the Ukrainian market in 2004 after legislation regulating the operation of investment funds came into force in Ukraine and when pension reform began. In PAM Ukraine, we created two open investment funds [there are 4 such funds in Ukraine - KW]: Parex Fund of Ukrainian Bonds (began operating in December 2005) and Parex Ukrainian Balanced Fund (started operating in January 2006), the assets of which are invested into the securities of Ukrainian issuers. The aggregate assets in the funds amount to UAH 8.3 mn and UAH 5 mn respectively. We also provide consulting to our clients concerning their investments in the securities of foreign issuers.

KW: Who are the main clients of investment funds in Ukraine?

AK: Besides large portfolio investors, citizens of Ukraine, who are wishing to diversify their capital investments and can not afford to invest an average of UAH 1,000 - 100,000 in the fund are our clients in Ukraine. Also, foreign citizens working of temporarily residing in Ukraine turn to us. We offer them possibility of purchasing Ukrainians stocks also through our parent company. For many foreigners, this is so far the most suitable variant. We can also work with clients individually whereby we set up so-called "turnkey" investment funds. However, in this case, we are talking about millions of dollars, not hundreds of thousands.

Even without conducting a large scale advertising campaign, investors come to us and trust us. Our main task now is not to win over clients from our competitor, but to join efforts and explain the benefits and reliability of investing into investment funds.

For our clients' convenience, we will sign cooperation agreements with large banks that are widely branched out. We have already signed a preliminary agreement with UkrSotsBank and reached agreements with Khreshchatyk, Universally and other banks.

With time, more people who have freed up capital and are willing to multiply their saving through accrued interest will turn to investment funds. The interest rates on savings deposits are on the decline. Even now, it is difficult to find an interest rate of 10% in a serious bank in Ukraine. This trend will continue in the future. Meanwhile, placing money into investment funds will ensure higher profit margins.

Kiev Weekly

7 June, 2006

Page 11

By Pavlo Berest