After being the world’s worst performing market in 2008, the Ukrainian stock exchange continues to post record returns this year, with the UX Index posting the highest YTD return in the world so far. This position was reinforced yesterday after Ukraine’s leading stock market indicator posted a 3.8% return. Investors seem to be playing out an Alice in Wonderland scenario judging by the unprecedented scale of the market’s contractions and expansions. The impressive growth of the stock market continues even though Ukraine is facing problems, as the budget for this year has still not been approved, political issues still remain unresolved and government solvency issues are still not on the agenda.

In any case, it is incredible that the market could post such a huge return on pro-new-coalition changes in Ukrainian legislation approved by the parliament or on expectations of a possible upgrade of Ukraine’s sovereign ratings by Fitch alone. We believe that a more realistic explanation is that there is likely large-scale hoarding of “hot” liquidity on the stock market that the domestic regulators are unaware of, which could eventually lead to a crash similar to in 2008. We hope that the market will cool down sooner rather than later.