The ghost market: why Ukrainian equities trade at a 60% discount
Alexandre Mougel, investor, investment banker
I have always been drawn to small-capitalization stocks. They are often overlooked and occasionally mispriced because few investors take the time to study them. For those willing to do the work, small caps reveal not only company fundamentals, but also how markets themselves function — or fail.
A few months ago, curiosity led me to a major Ukrainian food producer listed on a Western exchange. On paper, the setup was standard: an international listing, IFRS financial statements, and access via a global brokerage account. I executed a modest trade of roughly £5,000. Yet the share price moved by almost 10%. There was no news, no earnings release. The move was purely mechanical — the result of an order book with no depth.
This wasn’t just volatility; it was a reminder that liquidity is the foundation of any equity market. In a functioning market, such a transaction would be invisible. Here, it exposed a troubling reality: a market that exists formally, but not economically.
Liquidity as the Bridge Between Fundamentals and Value
Liquidity allows fundamentals to translate into valuation. Where it is scarce, prices move because someone traded, not because value changed. For retail investors, this is critical. If you cannot enter or exit a position without moving the market, you are not in a public market, but a negotiated one. This uncertainty raises the required return and, in aggregate, depresses valuations.
The Trap of “Listings Without Markets”
I do not approach this as an outsider. Before 2008, I worked with Ukrainian companies preparing for international listings. At the time, listing abroad promised capital and prestige. With hindsight, many of those listings were a mistake. The companies were operationally viable but simply too small to sustain a public market. What emerged were “listings without markets” — public in form, private in practice.
This pattern persists. Ukraine is not short of listed companies in London, Warsaw, or Frankfurt. Yet, for most, shares remain functionally uninvestable. Trading volumes are thin, and price discovery is episodic. Outside of a few names like Ferrexpo or MHP, markets cannot absorb even modest flows without distortion.
A Corporate Culture of Investor Indifference
The domestic market never corrected these weaknesses. During my time as a supervisory board member of Centrenergo (2021–2023), I spent nearly two weeks identifying anyone within the company with operational responsibility for the listing. Disclosures were minimal; communication with investors was nonexistent. The listing was treated as a formality, not as a relationship with capital providers.
This created a self-reinforcing equilibrium: companies didn’t invest in investor relations because investors were absent, and investors stayed away because companies didn’t communicate.
The Mechanics of the 60% Valuation Gap
Against this backdrop, the valuation gap between Ukrainian companies and Western peers is not a mystery. Ferrexpo and MHP often trade at a 50% to 60% discount compared to global peers. Fundamentals alone don’t explain this. Markets price risk in layers: war risk, governance uncertainty, and — crucially — liquidity risk. Where exiting a position is uncertain, capital demands a much higher return.
Capital Markets as a Pillar of Reconstruction
This matters beyond finance. Post-war reconstruction will require vast amounts of private capital. Without liquid, trusted equity markets, domestic savings will remain under the mattress or flee the country. Capital markets are not built by listings alone; they are built by enforcement, communication, participation — and credibility. Until these are in place, Ukraine will continue to pay a hidden premium on its growth — reflected in discounted share prices and missed opportunities.