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China brings hope to the Ukrainian economy

Author: Andrey Gerus

Over the last 3 months, steel raised by 50% (up to $ 350-380 per ton of slab or square billets), ore by more than 40% (up to $ 60 per ton), oil by 50% (up to $ 43 per Brent Barrel).

Back in February, most analysts attributed this increase to seasonal factors solely. However, the rise in commodity markets continued and even intensified in April, and it was not explained by seasonality.

More and more experts believe that China's economy overcomes its difficult period and shows signs of stabilization. China's GDP in the 1st quarter rose by 6.7% - the lowest figure in the last 7 years, but it meets expectations of analysts and the Chinese government.

However, at the same time, the number of indicators was better than expected, which encourages optimism about the Chinese economy. In Q1, investments increased by 10.7%; in March, exports grew by 11.5%, retail sales by 10.5%, real estate sales by 71%. At the same time, inflation in China is lower than the predicted values, which gives room for further monetary stimulus.

An important indicator is the stock market dynamics, which is often a forward-looking indicator of the real economy. Shanghai Stock Exchange Index has been rising for about 2 months; currently, it is trading close to recent highs. And the global FTSE All-World index reached its maximum from early December 2015.

At the same time, China reforms its economy. Such reform envisages a reorientation of export-oriented industrial economy to domestic consumption and the service sector. It will be accompanied by abolishment of inefficient industrial assets (steel, ore, and coal).

Such trends have a positive impact on Ukrainian exports, especially metallurgy. This explains the stabilization of hryvna in April. Obviously, such an intensive growth in commodity markets will not last long and 10% -20% adjustments are possible in June and July. Nevertheless, a certain margin of safety has already been formed – during the next months Ukraine will show positive macroeconomic indicators and monetary stability. No matter what government and the coalition we will have.

And if you have access to international capital markets, then I would recommend you to buy Eurobonds of Metinvest and Ferrexpo - against the above background, they are expected to grow in the next six months