Kyiv-listed stocks posted their largest one-week gains in more than three years last week amid speculation that cash from the state’s reformed pension system could eventually find its way into the local equity market. Although the devaluation of the hryvnia by around 10% against EUR/USD since the start of December should be taken into consideration for UAH-denominated stock prices, the market growth has nonetheless substantially outpaced the deval. We assume that investor optimism is related to the prospect of a quick introduction of the so-called “second level” pension system that has already been approved by Parliament. This terminology refers to a contribution-based pension system in addition to Ukraine’s longtime “solidarity” pension system. The budget of the State Pension Fund for 2018 was finalized at UAH 346bn (USD 12bn) with a whopping deficit of almost UAH 140bn (USD 4.9bn), which equivalent to around 4.3% of GDP. The huge pension fund deficit remains Ukraine’s largest problem in public finance. For comparison, the total assets accumulated by nongovernmental pension funds at the third, i.e. voluntary, contribution pension system - were less than UAH 3.0bn (USD 110mn) as of end-2017. Ukraine has over 12mn retirees, which is close to 30% of the population.
The UX index surged by 10.8% to close at 1513 points in four trading sessions of growth after Monday’s closure for the Orthodox Christmas holiday. CentrEnergo (CEEN) jumped by 17% to UAH 14.90, reaching our target price for the stock. The company reported that it has enough coal in storage to get through the current winter season. However, a major gain factor for the stock is the expectation of a possible large dividend from FY18 profit. CentrEnergo as a state-owned entity is obligated to have a dividend payout of 50% of its bottom line. Motor Sich (MSICH) was no less impressive, posting a 13% advance to UAH 4200 per share, and Raiffeisen Bank Aval (BAVL) jumped 7.4% to 30.90 kopecks.
London-listed MHP (MHPC) defended its recently-achieved 3-year high of USD 12.45, ending unchanged, while in Warsaw trading, Kernel (KER) failed to climb above the PLN 50.00 closing essentially flat at PLN 49.00.
The hryvnia lost an additional 1.2% against the dollar to close at 28.55 UAH/USD. The NBU reported that the country had USD 18.8bn in foreign currency reserves as of the end of 2017.
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