Dragon Capital and Kyiv Post Launch New Stock Index
Kyiv, August 17, 2000 – The Kyiv investment bank Dragon Capital and the Kyiv Post, Ukraine’s leading English-language publication, today launched the KP-Dragon Index, a new tool for tracking the performance of Ukraine’s stock market.
After the market’s recent consolidation phase, many companies that were once blue chips are now rarely traded, and the new index has been constructed to reflect this new reality. “Our mission is to give investors a true picture of Ukraine’s capital markets, and we realized that one of the key tools for doing this—a reliable index—was absent," said Kamil Goca, Dragon Capital’s Director of Research.
Dragon Capital and the Post say the two most important considerations in setting up the index were selection of a proper base and the use of true market prices, which can differ from those posted on the exchange.
The index comprises the market’s ten most consistently traded large-capitalization companies. "Other indices tend to give more weight to market capitalization when selecting their component companies, but a big market cap means nothing if there’s no free float and no liquidity," said Goca.
In determining liquidity, strong emphasis was placed on bid/offer spreads and frequency of trading. "If the difference between a stock’s bid and offer prices is consistently large, without active trading, you can’t set the real market price, so you can’t use that stock to track the market," said Goca.
Once a stock meets these standards, its weighting within the index is determined by market capitalization.
As of today the electricity generation sector accounts for 42.0% of the index’s capitalization, the oil and gas monopoly Ukrnafta 28.1%, electricity distribution 19.5%, the chemical sector 7.2% and metallurgy 3.2%. The KP-Dragon Index will use the official prices posted by Kyiv’s PFTS exchange, but prices can be adjusted by Dragon’s traders if there is an obvious anomaly.
"Due to the immaturity of the market, sometimes the prices on the PFTS don’t show the real picture," said Dmytro Tarabakin, Dragon’s Head Trader. "Sometimes brokers try to manipulate the market by reporting trades that are old or for negligible size."
Another distinctive feature of the index is that it is based on the component securities’ U.S. dollar prices. Dragon Capital and the Kyiv Post are confident that this will make the index the most popular Ukrainian benchmark for international investors, who track their portfolios in dollars. And since Russian indices are also dollar-based, the KP-Dragon Index provides a convenient basis for comparison.
"Investors who look at Ukraine tend to compare it to Russia," said Tarabakin. "We need to give them numbers that they can look at alongside the RTS or other indices, so they’re not comparing apples with oranges."
The index is calculated daily, at the close of PFTS trading. The value for any given day equals the index’s total capitalization divided by the capitalization on May 5, 1997, multiplied by 1,000.
This starting date was chosen because only then were Ukraine’s financial markets developing the liquidity needed to make an index meaningful.
The KP-Dragon Index is designed to be flexible, allowing for changes to its composition and weighting as market conditions change. "Once listed, Ukrtelecom will immediately become part of the index," said Goca. He added that the composition of the index will be reviewed at least once a quarter.
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