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Prepared by Valeriy Gontarev Chairman of the Board of Directors of the group of companies ICU (“Investment Capital Ukraine”) Outlook for development of.

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Presentation on theme: "Prepared by Valeriy Gontarev Chairman of the Board of Directors of the group of companies ICU (“Investment Capital Ukraine”) Outlook for development of."— Presentation transcript:

1 Prepared by Valeriy Gontarev Chairman of the Board of Directors of the group of companies ICU (“Investment Capital Ukraine”) Outlook for development of the financial and capital markets in Ukraine June 17, 2010. Kiev, hotel Intercontinental

2 EUROPEAN FINANCIAL CRISIS

3 The nature of crisis in the Eurozone “All as one”, this is how investors estimated the risk of debt instruments of the Eurozone countries before the crisis Now “all are different”, but the EUR currency remains “one for all”… Profitability of 10 year sovereign bonds Источник: Reuters, «Инвестиционный Капитал Украина» GermanyGreeceItalyIrelandPortugalSpain Source: Reuters, the Investment Capital Ukraine dec-05mar-06dec-06dec-07dec-08dec-09mar-07mar-08mar-09jun-06jun-07jun-08jun-09sep-06sep-07sep-08sep-09mar-10jun-10

4 Overall common budget deficit of the EC countries According to the Maastricht criteria, the budget deficit must not exceed 3% of GDP However, not once have a number of countries in the Eurozone violated this requirement State budget deficit (% of GDP) Источник: Eurostat GermanyGreeceItalyIrelandPortugalSpainEurozone (6 countries) Source: Eurostat % of GDP

5 Excessive debt load in some countries of the Eurozone “Life beyond their means” -- before the 2008-09 global crisis the markets allowed some countries to live on credit (often foreign one) The decrease in budget deficits and, correspondingly, in debt load is the basic thesis of economic policy The consolidated state debt by the end of the period (% of GDP) Источник: Eurostat. GermanyGreeceItalyIrelandPortugalSpainEurozone (6 countries) % of GDP Source: Eurostat

6 The reason for weakening of EUR is the flight of capital out of the Eurozone Exchange rate of USD against EUR CDS for 5 year sovereign debts of “problem” countries in Europe Источник: Bloomberg Greece Italy Ireland Portugal Spain Source: Bloomberg dec-05mar-06 apr-10jan-10may-10 jun-06 feb-10jun-10mar-10oct-09nov-09dec-09 jan-10jul - 09mar-10sep-09may-10nov-09jan-09mar-09may-09

7 The main current problems of the Eurozone: debt, growth of GDP and deflation The actual GDP growth rate (%) The consumer prices inflation rate (%) Источник: МВФ, World Economic Outlook Greece Italy Ireland Portugal Spain Germany Eurozone (6 countries) Greece Italy Ireland Portugal Spain Germany Eurozone (6 countries) Source: IMF, World Economic Outlook Outlook

8 The deficit/proficit of the current account of the EC countries payment balance The fundamental problem is that the countries suffering from debt problems are not capable of competing with their products in the foreign markets, which is why they constantly have deficits of their trade balances Источник: OECD GermanyGreeceItalyIrelandPortugalSpainEurozone (6 countries) Source: OECD % of GDP

9 MACRO ECONOMIC SITUATION IN UKRAINE

10 Ukraine: the budget deficit and state debt State debt of Ukraine, % GDP Источник: Министерство финансов Украины, отчет Кабинета министров Украины Источник: Министерство финансов Украины Deficit: official and covert The state budget deficit, official data, % GDP The state budget deficit, including covert deficit, % GDP Overall debt Internal debtExternal debt % of GDP Source: the Ministry of Finance of Ukraine, the Cabinet of Ministers report Source: the Ministry of Finance of Ukraine % of GDP jul - 08jul - 06mar-09mar-07nov-09nov-07jul - 04mar-05nov-05

11 Ukraine: the GDP growth and inflation rates The yearly inflation rate, % Источник: Комитет статистики Украины The yearly actual GDP growth rate, % Source: The State Statistics Committee of Ukraine jan-06jan-08Jan-10jan-00jan-02jan-04

12 The payment balance of Ukraine The payment balance is gradually leveling off after the crisis decline to negative values Источник: НБУ Source: The National Bank of Ukraine Current operations account balance Balance of payments

13 The merchandise trade balance and financial account of Ukraine Foreign merchandise trade The capital transactions account balance and financial account balance Источник: НБУ Source: The National Bank of Ukraine Export (Ihs) Import (Ihs) billion, USD Capital transactions account (Ihs) Other capital (Ihs) Portfolio investments (share capital) (Ihs) Loans and bonds (balance) (Ihs) Direct Investments (balance) (Ihs) billion, USD jan-08 mar-08 may-08 jul -08 sep-08nov-08 jan-09 mar-09 may-09 jul -09 sep-09nov-09 jan-10 mar-10 jan-08 mar-08 may-08 jul -08 sep-08nov-08 jan-09 mar-09 may-09 jul -09 sep-09nov-09 jan-10 mar-10

14 The nominal exchange rate of UAH against USD and UAH real effective exchange rate The devaluation in October 2008 resulted in the sharp REER index decrease, which means that Ukrainian goods have become more competitive in comparison with their main trade partners This facilitates a gradual trade balance recovery that is a crucial pre-requisite of financial stability The REER index (real effective exchange rate of UAH against the basket of currencies) The nominal exchange rate of UAH against USD (rhs) oct-06oct-07aug-08jan-04dec-04nov-05jul -09

15 FUTURE: OUTLOOK AND REQUIRED REFORMS

16 The outlook for 2H 2010: quieter market for shares, the hot ticket is VAT bonds The real PFTS index increased by nearly 300% in the period of March 2009 – April 2010. Its correction is still going on, but the volatility is notably decreasing, so a quieter market for shares is expected in 2H 2010. Now approximately UAH 5 billion are expected to be invested in the new assets that is VAT bonds. The expected profitability is 22-23%. The movement on the market for corporate bonds of Ukrainian issuers can be expected only by the end of 2010. Реальный* темп прироста рынка акций Украины * The real growth rate is a change of the PFTS share market index, inflation factored in. Source: PFTS, Investment Capital Ukraine may-02aug-00dec-02mar-01jul -03oct-01jun-99nov-98jan-00feb-04sep-04apr-05nov -05jun-06jan-07aug-07mar -08oct-08may-09dec-09

17 The required reforms Effective procedures of borrowers’ bankruptcies in case they refuse or cannot repay their debt; Refining of the system and procedures for information disclosure when issuing securities and during their circulation; The pension reform completion and encouraging Joint Investment Institutions to form a pool of internal institutional investors; Enforcing of effective monetary and fiscal policy as to decrease the value of securities in national currency and to stimulate their issue; Liberalisation of an outdated currency regulation Elimination of tax preferences between different instruments of safekeeping and accumulation of savings (which means no tax on bank deposits earnings)

18 Investment Capital Ukraine 01030, Kiev, Bogdana Khmenlnitskogo Str, 19-21 Business center “Leonardo”, floor 11, office 44 Tel. 044 2200120 www.icu.ua Bloomberg ICUA, Thomson Reuters


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