December 30, 2005
Hedge funds find Ukraine stocks good for their future
Several countries which have till now been low key are now emerging on the radar of hedge funds. Hedge funds are waking to the existence of other economies that can fuel future growth. Chief amongst them is Ukraine.
The country had emerged from its communist garb in the 1990s. But its liberalization began only in 2004 with the ‘Orange Revolution’ protests. Since then it has been demonstrating steady growth. A growth that has enabled it to earn market-economy status from the EU.
This new found status will help the country to establish trade relations with the 25 member block. Ukraine is also expected to join the World Trade Organization in 2006. This, analysts feel, will give further boost to its economy. In view of the recent developments and future plans, hedge funds are seeing the country as a viable market for generating returns.
Leila Kardouche, manager of the RAB Emerging Europe Fund feels that there is a lot of pent up domestic demand in Ukraine. She has also made the observation that investments have definitely picked up and future growth is inevitable with several entrepreneurs waiting to list their companies. The main sectors that the country is expected to show growth in are banking, industrials, mining and consumer plays. Kardouche’s RAB Emerging Europe Fund has more than $100 million under management. The fund has returned more than 25 % since its launch in 2004.
Hedge finds are known to be constantly on the look out for avenues to generate better returns. Recent overcrowding of the market by several players has been pushing them even further to look for more money generating opportunities. When the conventional markets dry up, these funds are known to look elsewhere to improve performance.
This adaptability ensures that they almost always perform better than the equity market. The stock market has been throwing up lesser than usual number of opportunities to generate returns and is generally moving sideways. As such the funds are looking at other economies and tools to fuel their growth. Some time back it was the Asian markets that had caught the fancy of these somewhat secretive funds. While Asian markets continue to improve their profits they are keeping their eyes open for better opportunities to exploit.
Other countries that also seem to be attracting their attention are South Africa and Russia. Both these markets seem to have potential but as of now are battling with their own inadequacies. Lately they have had a decent and strong run in the stock market. However Kardouche feels that the markets definitely have good potential for hedge funds. Despite the optimism about the future, she feels that returns will not be as easy going in 2006.
Since the time Russia defaulted on domestic debt in 1998, it has been saved by record high oil prices over the last few years. Analysts feel that if oil prices came down to $20 to $30 per barrel, the growth would be phenomenal. On the other hand, South Africa has generally relied on its reserves of precious metals such as gold and platinum. The prices for these metals have also hit record highs in the last few months. Reuters reports:
“Ukraine threw off its communist shackles in the early 1990s along with other east and central European countries like Hungary and Poland and Baltic states such as Estonia.”
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