Monday, May 16, 2016
Ukrainian economy beginning to turn positive
Faced with a war on the border with Russia and a devaluation that sent inflation shooting past 60 percent, crumbling domestic demand kept the economy shrinking for eight straight quarters on an annual basis. Buoyed by a spending revival, that slump ended in the first three months of 2016, when gross domestic product edged up 0.1 percent. Even so, the result missed economist forecasts, while GDP shrank from the previous quarter.
Ukraine’s economy is healing from the recession that followed its second street revolution in a decade. The hryvnia, which lost more than a third of its value last year, has stabilized, inflation has eased below 10 percent and a fragile cease-fire in the nation’s separatist conflict is encouraging companies to invest.
So this is another example of my investment thesis of seeking out bombed out markets that are experiencing a change at the margin. This is the case in Ukraine after several years of a collapsing economy, social and political unrest, and a low grade war on its eastern border. The economy is beginning to stabilize and the country is being forced by the IMF and the EU to begin making changes to its economic policies. This is most important to me in that the natural gas royalty rates were reduced to prewar terms which has stimulated new interest in gas drilling in Ukraine. I am currently playing this through Cub Energy (KUB.V).