Analyst Corner - Understanding Value At Risk (VAR)

VAR in its many forms is a common measure of a portfolio's downside risk. If you work in investments, you may see this terminology repeatedly in common practice. Here is a quick summary of the common VAR acronyms, their benefits and some of their limitations.

Value At Risk (VAR)
VAR essentially says that there is an X% probability that the portfolio will lose $Y or more, during time period Z. So it has three basic components, the probability of loss (X), the minimum amount of loss (Y), and the time period within which the loss would occur (Z). It's a downside risk estimate, not a prediction, that portfolio managers can use for risk budgeting purposes and investors can use as a risk estimation metric when looking at a particular portfolio. People calculate VAR in a number of ways, including (1) looking at historical losses over a long period of time and using the historic loss data to calculate VAR; (2) using Monte Carlo simulation to project what VAR should be, based on establishing risk factors and assigning probabilities to those risk factors; or (3) using a variance-covariance method to determine the 1% or 5% left-hand tail of a portfolio's return distribution (assuming normal distribution, taking the mean portfolio return and then subtracting the product of 1.65 times the standard deviation of the portfolio's return in the case of 5% VAR - for example).

Conditional Value At Risk (CVAR)
CVAR is the expected dollar amount of loss, given the fact that you're in a VAR situation (i.e., the X% probability situation described above actually occurs... and you're facing a loss of at least $Y... how much is that loss expected to be exactly? What's the expected shortfall?). Calculating CVAR can be simple or complex, depending on the situation. The easy way is to simply take all the VAR values in your historic data sample or Monte Carlo simulation and average them. If you're using the variance-covariance method it can be more complicated because we don't have a finite limitation for the left-hand data tail... so there should be some formula explanation showing how CVAR is calculated in such cases.

Incremental Value At Risk (IVAR)
IVAR is the dollar amount change in VAR that results from a percentage increase or decrease in a security's weight within a portfolio. For example, if a 3% increase in a portfolio's security holding changes the portfolio's VAR from $1 Million to $1.3 Million, then the IVAR for this 3% increase in portfolio weight is equal to $300 Thousand.


Marginal Value At Risk (MVAR)
MVAR is related to IVAR. It simply measures the change in VAR for a one percent change in a security's portfolio weight.


Ex Ante Tracking Error (also known as Relative VAR)
Ex Ante Tracking Error (Relative VAR) measures the VAR of the difference between a portfolio's return and the return of the benchmark index against which that portfolio is compared for performance evaluation purposes. You can calculate this VAR as a combination of a long position in the portfolio and a short position in the benchmark index. An X% monthly Relative VAR of Y% means that X% of the time, the portfolio will under perform the benchmark index by Y% or more.

Advantages and Disadvantages of VAR Metrics
VAR is a relatively simple universal concept using within portfolio management, although it can be calculated in numerous ways as explained above. It generates basic score numbers which can be compared and/or ranked across different portfolios and asset classes to measure the comparative weakness and downside risks of opportunities. VAR is often used for risk budgeting (assigning a maximum VAR for a fund or portfolio generally, then allocating that total VAR across different underlying investment types based on their relative risk and/or significance).


VAR has its limitations also, however. For instance, it only measures downside risk and doesn't capture the reward return that accompanies such risk. Therefore, it may misrepresent the entire picture. Second, VAR (like anything in financial analysis) is not immune to various forms of potential manipulation. Tricky people could pick a certain data period or set certain parameter assumptions that can make VAR look better than it probably should look, so it's important to always understand what the underlying assumptions and data are for a VAR calculation. Finally. VAR does not capture all aspects of risk, it's a simplified number not a "be all, end all" risk quantification. As markets rise or fall, a security's risk may relatively widen or contract versus the market for any number of general or situation specific reasons. To make a long story short, VAR is a common tool you can use for measuring downside risk but it's neither an insurance policy or a draw down prediction. It's simply a compilation of either historic or computed expected loss value data, and making use of that data to create an additional evaluation tool for investors and fund managers as they're going about their working days.

Analyst Corner - Calculating A Public Firm's Beta

Hello again! Today I will write quickly about how to calculate a publicly traded firm's Beta, for CAPM "cost on equity" purposes.  It's pretty simple so I will keep it short and sweet.

First, you will need to have Microsoft Excel handy.  This is the hardest step actually - the rest is plug and play.

Make one column of data showing the monthly average price for the stock you're interested in, for a number of years ending in the current year.  How far you go back will depend on what the market did during that time (you don't want data selection bias) and what the stock did during that time (did the company change its core business from one sector to another, if so then you're most interested in the current business period).  Then, to the right of this data, do simple division to get the percentage changes month to month (simple division of the current month divided by the previous month, minus 1).  These monthly percentage changes will be part 1 of your source data for the Beta calculation.  Let's call them Data Group A

Make a second column of data showing the monthly average S&P Index quotes for the same period.  Or whatever index best applies to the country or business sector of the stock you're looking at.  The index should be representative and not taken from a different country's stock market.  Like you did for the stock price data above, to the right of all the S&P Index quotes you will add the percentage change of that month versus the previous month (simple division of the current month divided by the previous month, minus 1).  These monthly percentage changes are the second data source for our stock Beta calculation.  Let's call them Data Group B.

The Beta calculation is very simple.  Beta, as many of us know, is simply the Covariance of the individual stock price returns and market returns, divided by the Variance of stock and the market returns.  On Excel this is super easy, there are functions for Covariance and Variance built into the program.

So in this case, you add a cell on the spreadsheet called "Covariance of Stock & Market Returns" and in the cell to the right of that cell, type the text "=COVAR.P" which will then prompt you for the data you want to find the Covariance for.  Highlight all Data Group A with your mouse, and then type "," after you've highlighted it... the comma then moves you to the second group of data modeled in the Covariance function.  Then you highlight all Data Group B with your mouse, and finally type ")" which closes the function.  Hit the "return" key and you'll have the Covariance of Data Group A and Data Group B.  This is the numerator in your Beta calculation.

To get the denominator in your Beta calculation, simply go to another cell and call it "Variance of Stock Returns" and to the right of that cell, type the text "=VAR.P" which will then prompt you for the data.  Highlight all of Data Group A with your mouse, then type ")" to close out the function.  This gives you the Variance of the stock returns.  Repeat the same step for Data Group B and call is "Variance of Market Returns."  Multiply them together and this is the denominator in your Beta calculation.

Beta then, is simply dividing the numerator by the denominator.  Boom you've got your Beta.  If you have a non-listed asset you want to track Beta for, and you have access to good price/value data for the asset, then you can do the same thing for it, and replace the non-listed price/value data in the column to generate the Data Group A.  But beware price smoothing and appraisals as a source for price/value data of non-listed assets, particularly less liquid heterogeneous assets (like real estate, for example).  The data may not be representative or stale and at minimum would need to be unsmoothed in such instances.

Analyst Corner - Calculating A Firm's Enterprise Value

Hello everyone, I am starting a new sub-chain of blog posts that I will put up from time to time regarding financial modeling and analyst fundamentals.  If you have a topic you'd like me to cover - assuming I know it well to speak on it - I would be happy to address it, feel free to write a comment to my post with your request.

How To Calculate A Firm's Enterprise Value
When valuing companies, analysts and investors often must determine their most accurate calculation for the Enterprise Value (EV) of  firm.  By the simplest definition, a firm's EV is the value of its core business activities - the a starting point foundation for arriving at M&A offers, stock price valuations, and so forth.  For companies with liquid, publicly traded debt and equity instruments, the short-hand approach to determine EV is simply to take the market value of all the firm's equity (i.e., the number of public shares multiplied by the price per share), add to that the market value of the firm's debt (also can taken from public exchanges if it's publicly traded), and then subtract cash and cash equivalents (listed in the Balance Sheet).  Put another way, you take all the net assets and the debt of a firm (which is usually used for fixed asset CAPEX anyway), subtract the cash out (since cash is not a unique value to a firm, and if you bought the firm it would be without of this cash anyway), and this gives you the EV.

Simple, right?  Well not always - many firms do not have publicly traded debt and/or equity, and even when they do have one or both of those, often analysts will be looking to see if those items are mispriced in the market.  Such mispricings - aka market inefficiencies - are where the money is made and where analysts demonstrate their value.

Calculating EV By Using The Balance Sheet
The roughest way to approximate a firm's EV is to look at its balance sheet and make some adjustments.  Specifically, there are two adjustments to make.  First, put everything on spreadsheet in front of you, assets on the left side and liabilities + equity on the right side. Then, create a new specific item on the left side and the right side - on the left side the new item, which appears above Fixed assets, is called "Net Working Capital."  On the right side, above the first item that is non-financial long term liabilities (Pension Liabilities for example), create a new item called "Net Debt."

Now comes the first adjustment.  Take Cash and Cash Equivalents (including Marketable Securities) away from Current Assets, and move them to the right hand side of the Balance Sheet, subtracting them from Total Debt of the firm, to arrive at the new line item "Net Debt."

And the second adjustment.  Take Current Liabilities that do not refer to debt (aka operations related Current Liabilities such as Accounts Payable and Taxes Payable), and subtract those from the remaining Current Assets on the left hand side, to arrive at your new "Net Working Capital" line item on the left hand side of the Balance Sheet.

If the firm has no publicly traded debt or equity, this simple process will give you a rough sketch of a firm's EV just using the Balance Sheet.  Note that all items on a firm's balance sheet are generally different from the market value of the same items, because they reflect historic values for the most part - the values as of when they were originally entered to the balance sheet.

To account for valuation discrepancies between balance sheet values and current market values, when a firm has publicly traded equity an analyst can make a slight corrective adjustment to the process above.  He or she can replace the book value of equity on the firm's Balance Sheet with the real market value of the firm's publicly traded equity (taken from Yahoo Finance or Bloomberg, etc.).  This will create an imbalance between the right hand side and the left hand side of the Balance Sheet.  To correct this, the analyst can manually change the left hand item value for "Goodwill" to cover the difference, so that the left and right hand sides match again.  At the bottom of each side, the matching value is the firm's estimated EV.

Calculating EV By Using A Firm's Consolidated Statement Of Cash Flows
Every firm includes a consolidated statement of cash flows (CSCF) in its financial statements.  Cash flows generated by the firm over the defined period of the statement are broken into three easy to separate categories: operating cash flows, investment cash flows, and financial cash flows.

There are many formulas for calculating EV of a firm, and one applies particularly here.  EV can be defined as the sum of all expected free cash flows to the firm (FCF) discounted by its weighted average cost of capital (WACC).  I will discuss WACC in more detail in future post.  For now, the important thing is to know how to get FCF from a firm's CSCF, and then we assume here you've got the WACC handy already.

To estimate a firm's FCF based on its CSCF, the analyst does the following three general things (corresponding to the three sections of the CSCF itself).  For operating cash flows, the analyst generally leaves everything alone and keeps things as they are.  But oppositely, the analyst totally eliminates/disregards all financial cash flows.  For investment cash flows, the analyst makes a few tactical adjustments - all cash flows related to investments and the purchase and sale of financial assets are deleted.  The rest of investment cash flows - the ones related to investment in assets used to produce a firm's business income - are left included.  The analyst adds the operational cash flow to the "adjusted" investment cash flow, and then adds in Interest After Tax (Interest expense multiplied by 1-Tax Rate) to get the FCF.  This FCF can then estimated across future years by an analyst's estimated growth rate, while also discounted by WACC (divided by 1+WACC in year 1, etc.) to get the firm's  EV.

Calculating EV Using A Firm's Income Statement And Balance Sheet Together
Another formula for calculating a firm's EV is:  EV = (EBIT)(1-Tax Rate)-(Change in Net Working Capital)-(Increase in Fixed Assets).  This can be also broken down into: EV = (EBIT)(1-Tax Rate)-(Increase in non-cash Current Assets)+(Increase in non-debt Current Liabilities)-(Increase in Fixed Assets).

With that in mind, if you have the firm's Income Statement combined with its Balance Sheet, you can easily calculate EV using all these line items above.  Just plug and play.  The tax rate is determined by looking at the Income Statement, and dividing the firm's Income Tax Expense line item by its Income Before Tax line item.

I hope this was helpful to someone, if you have other financial modeling/valuation topics you'd like me to cover here I am happy to try my best efforts.


 

World Bank Lends Belarus $90 Million For Wood Biomass Heating Projects

The World Bank has loaned US$90 million to the Republic of Belarus for converting municipal district heating stations from gas to biomass wood fuel.  The project involves the replacement of existing gas boilers by biomass boilers, provision of wood chipping equipment and biomass fuel storage facilities, installation of individual building-level heat substations with temperature control, and upgrading of district heating networks.

“Forest is one of Belarus’s richest natural resources. The full potential of wood biomass as alternative renewable energy resource has yet to be realized in Belarus,” stated Young Chul Kim, World Bank Country Manager for Belarus. “Using low-quality wood, now treated as industrial waste, for heat and power generation will also contribute to the development of the wood processing industry, and is consistent with the national overall strategy to encourage sustainable forest management. It also allows new jobs and business opportunities to be created in these sectors.”

Previously Belarus has relied on Russian gas to run its heating stations, and the Government of Belarus has a goal to replace this gas with local fuels, mainly biomass, by 32 percent in 2020. Further details and information are available on the World Bank's website at http://www.worldbank.org/en/news/press-release/2014/03/31/world-bank-belarus-energy-sector.

Kind regards
Jon

Warsaw Market Watch - Tuesday 2 October

Greetings from Kiev!  Here is this morning’s Ukrainian stock performance summary, from the Warsaw Stock Exchange, based on the prior trading day's closing bell.  As a whole, the Warsaw Stock Exchange performed up on the day (+1.01%), in line with similar results in the European markets (FTSE +1.37%, STOXX +1.82%, CAC +2.39%, DAX +1.53%, IBEX +0.98%) and most U.S. markets (DOW +0.58%, S&P +0.27%, NASDAQ -0.09%).  Looking at Ukrainian equities in particular across the Warsaw Stock Exchange, they slightly outperformed the market and closed up (+1.25%) for the day, with gains in certain weighted names in the agriculture, metals/mining, food production and energy sectors.  From a market depth standpoint, the highest trading volumes occurred in Westa International Scientific Group (444,510 shares) and Kernel (79,622 shares).

For specific results kindly see the table below, prices denoted in Polish currency (Zlotys).  Cheers – Jon

WSE WIG Index (total return index for Warsaw Stock Exchange listed companies): 44183.21 (+1.01%)

WSE WIG-Ukraine Index (total return index for Ukrainian listed companies):  721.00 (+1.25%) 

Ovostar Union NV (OVO PW):  101.00 (+0.60%)

Kernel Holding SA (KER PW):  65.05 (+0.08%)

Agroton Public Limited (AGT PW):  11.39 (+5.95%)

Astarta Holding NV (AST PW):  67.95 (+1.87%)

Industrial Milk Co (IMC PW):  14.99 (+2.67%)

KSG Agro SA (KSG PW):  13.34 (+0.30%)

Milkiland (MLK PW):  16.98 (-1.57%)

KDM Shipping Plc (KDM PW):  25.80 (unch)

Coal Energy SA (CLE PW): 17.40 (+4.82%)

Sadovaya Group SA (SGR PW):  4.30 (+3.12%)

Westa Intl Scientific Group (WES PW):  1.12 (+3.12%)

Carbon Trading

ICE daily CER price for carbon went back on the positive, closing at 2.24 EURO (+2.28%), at a time when EU registries were closed for upgrades that will allow faster delivery between accounts. 

Warsaw Market Watch - Monday 1 October

Greetings from Kiev!  Here is this morning’s Ukrainian stock performance summary, from the Warsaw Stock Exchange, based on the prior trading day's closing bell.  As a whole, the Warsaw Stock Exchange performed flat on the day (-0.05%), in line with similar results in the European markets (FTSE -0.65%, STOXX -2.07%, CAC -2.46%, DAX -1.01%, IBEX -1.71%) and the U.S. markets (DOW -0.36%, S&P -0.45%, NASDAQ -0.65%).  Looking at Ukrainian equities in particular across the Warsaw Stock Exchange, they slightly outperformed the market and closed up (+0.28%) for the day, with gains in certain weighted names in the agriculture, food production and metals/mining sectors.  From a market depth standpoint, the highest trading volumes occurred in Westa International Scientific Group (714,445 shares), Astarta (162,752 shares) and Kernel (114,996 shares).

For specific results kindly see the table below, prices denoted in Polish currency (Zlotys).  Cheers – Jon

WSE WIG Index (total return index for Warsaw Stock Exchange listed companies): 43739.81 (-0.05%)

WSE WIG-Ukraine Index (total return index for Ukrainian listed companies):  712.08 (+0.28%) 

Ovostar Union NV (OVO PW):  100.40 (+1.62%)

Kernel Holding SA (KER PW):  65.00 (-0.76%)

Agroton Public Limited (AGT PW):  10.75 (+0.66%)

Astarta Holding NV (AST PW):  66.70 (+1.83%)

Industrial Milk Co (IMC PW):  14.60 (-0.68%)

KSG Agro SA (KSG PW):  13.3) (-0.30%)

Milkiland (MLK PW):  17.25 (unch)

KDM Shipping Plc (KDM PW):  25.80 (unch)

Coal Energy SA (CLE PW): 16.60 (+0.91%)

Sadovaya Group SA (SGR PW):  4.17 (-0.71%)

Westa Intl Scientific Group (WES PW):  1.07 (-1.83%)

Carbon Trading

ICE daily CER price for carbon corrected slightly to 2.19 EURO (-1.79%), after a long winning streak since 15 September. 

Warsaw Market Watch - Friday 28 September

Greetings from Kiev!  Here is this morning’s Ukrainian stock performance summary, from the Warsaw Stock Exchange, based on the prior trading day's closing bell.  As a whole, the Warsaw Stock Exchange performed slightly up on the day (+0.69%), in line with similar improvements in the European markets (FTSE +0.20%, STOXX +0.30%, CAC +0.72%, DAX +0.19%) and the U.S. markets (DOW +0.54%, S&P +0.96%, NASDAQ +1.39%).  Looking at Ukrainian equities in particular across the Warsaw Stock Exchange, they experienced a correction and closed slightly down (-0.26%) for the day, with losses in certain agriculture and food production names offsetting gains in the energy and metals/mining sectors.  From a market depth standpoint, the highest trading volumes occurred in Westa International Scientific Group (2,005,203 shares) and Kernel (123,251 shares).

For specific results kindly see the table below, prices denoted in Polish currency (Zlotys).  Cheers – Jon

WSE WIG Index (total return index for Warsaw Stock Exchange listed companies): 43763.3 (+0.69%)

WSE WIG-Ukraine Index (total return index for Ukrainian listed companies):  710.1 (-0.26%) 

Ovostar Union NV (OVO PW):  98.80 (-0.45%)

Kernel Holding SA (KER PW):  65.50 (-1.50%)

Agroton Public Limited (AGT PW):  10.68 (-1.11%)

Astarta Holding NV (AST PW):  65.50 (unch)

Industrial Milk Co (IMC PW):  14.70 (unch)

KSG Agro SA (KSG PW):  13.34 (+0.23%)

Milkiland (MLK PW):  17.25 (+1.83%)

KDM Shipping Plc (KDM PW):  25.80 (unch)

Coal Energy SA (CLE PW): 16.45 (+2.81%)

Sadovaya Group SA (SGR PW):  4.20 (+0.72%)

Westa Intl Scientific Group (WES PW):  1.09 (+13.54%)

Carbon Trading

ICE daily CER price for carbon continues to climb for the third straight day to 2.23 EUR (+4.21%), on the news of a possible EU Emissions Trading Scheme decision to block certain newly issued ERUs from being used for compliance. 

Warsaw Market Watch - Thursday 27 September

Greetings from Kiev!  Here is this morning’s Ukrainian stock performance summary, from the Warsaw Stock Exchange, based on Tuesday’s closing bell.  As a whole, the Warsaw Stock Exchange performed slightly down on the day (-0.82%) after a previous day of gains, in line with similar slight decreases in the European markets (FTSE -1.56%, STOXX -2.72%, CAC -2.82%, DAX -2.00%, IBEX -3.92%) and the U.S. markets (DOW -0.33%, S&P -0.57%, NASDAQ -0.77%).  Looking at Ukrainian equities in particular across the Warsaw Stock Exchange, they outperformed the Polish market in general and closed up (+0.64%) for the second straight day, led by gains in value for certain weighted names in the agriculture sector.  From a market depth standpoint, the highest trading volumes occurred in Westa International Scientific Group (1,952,988 shares) and Kernel (90,965 shares).

For specific results kindly see the table below, prices denoted in Polish currency (Zlotys).  Cheers – Jon

WSE WIG Index (total return index for Warsaw Stock Exchange listed companies): 43462.141 (-0.82%)

WSE WIG-Ukraine Index (total return index for Ukrainian listed companies):  711.98 (+0.64%) 

Ovostar Union NV (OVO PW):  99.25 (-1.73%)

Kernel Holding SA (KER PW):  66.50 (+3.74%)

Agroton Public Limited (AGT PW):  10.80 (-1.82%)

Astarta Holding NV (AST PW):  65.50 (-0.76%)

Industrial Milk Co (IMC PW):  14.70 (unch)

KSG Agro SA (KSG PW):  13.31 (-0.22%)

Milkiland (MLK PW):  16.94 (-0.94%)

KDM Shipping Plc (KDM PW):  25.80 (unch)

Coal Energy SA (CLE PW): 16.00 (-1.48%)

Sadovaya Group SA (SGR PW):  4.17 (-3.25%)

Westa Intl Scientific Group (WES PW):  0.96 (-32.87%)

Carbon Trading

ICE daily CER price for carbon improves for the second straight day to 2.14 EUR (+3.88%), against a background of falling energy and commodity prices, with gains driven by options trading and lower recent CER and ERU issuances. 

Warsaw Market Watch - Wednesday 26 September

Greetings from Kiev!  Here is this morning’s Ukrainian stock performance summary, from the Warsaw Stock Exchange, based on Tuesday’s closing bell.  As a whole, the Warsaw Stock Exchange performed up on the day (+0.68%), in line with similar slight increases in the European markets which also by and large closed on positive notes (FTSE +0.36%, STOXX +0.41%, CAC +0.47%, DAX +0.16%, IBEX +0.45%).  Looking at Ukrainian equities in particular across the Warsaw Stock Exchange, they performed in line with the Polish market in general and closed up (+0.61%), led by gains in value for certain weighted names in the energy, agriculture and food production sectors.  From a market depth standpoint, the highest trading volumes occurred in Westa International Scientific Group (1,203,885 shares) and Kernel (122,813 shares).

For specific results kindly see the table below, prices denoted in Polish currency (Zlotys).  Cheers – Jon

WSE WIG Index (total return index for Warsaw Stock Exchange listed companies): 43822.422 (-0.68%)

WSE WIG-Ukraine Index (total return index for Ukrainian listed companies):  707.46 (+0.61%) 

Ovostar Union NV (OVO PW):  101.00 (unch)

Kernel Holding SA (KER PW):  64.10 (+1.18%)

Agroton Public Limited (AGT PW):  11.00 (-1.70%)

Astarta Holding NV (AST PW):  66.00 (+0.15%)

Industrial Milk Co (IMC PW):  14.70 (+1.38)

KSG Agro SA (KSG PW):  13.34 (+2.69%)

Milkiland (MLK PW):  17.10 (+2.29%)

KDM Shipping Plc (KDM PW):  25.80 (unch)

Coal Energy SA (CLE PW): 16.24 (+0.25%)

Sadovaya Group SA (SGR PW):  4.31 (-0.92%)

Westa Intl Scientific Group (WES PW):  1.43 (+28.83%)

Carbon Trading

ICE daily CER price for carbon improves to 2.06 EUR (+3.52%), on the back on stronger oil and energy prices, while market participants wait for EU decision making in regard to a potential set aside of EUAs.

Ukraine Business News

Ukraine's State Debt Fell Slightly in August, According to Government
According to figures compiled by Ukraine's Ministry of Finance, the country's public debt fell by 1.02% or $635.3 million - to $61.539 billion.  In their report, the Ministry states that Ukraine's national debt increased by 3.9%, or $2.323 billion, from $59.216 billion during the first 8 months of 2012.  (for more information kindly see http://korrespondent.net/business/economics/1399228-gosdolg-ukrainy-neznachitelno-sokratilsya-v-avguste)

Warsaw Market Watch

Greetings from Kiev!  Here is this morning’s Ukrainian stock performance summary, from the Warsaw Stock Exchange, based on Monday’s closing bell.  As a whole, the Warsaw Stock Exchange performed flat on the day with a slight decrease (-0.40%), in line with similar slight decreases for the Dow (-0.15%), the S&P500 (-.22%) and the FTSE (-0.24%).  Looking at Ukrainian equities in particular across the Warsaw Stock Exchange, they outperformed the market in general and closed up (+0.92%), led by gains in value for certain weighted names in the energy, shipping, agriculture and food production sectors.  From a market depth standpoint, the highest trading volumes occurred in Westa International Scientific Group (983,535 shares), Kernel (86,575 shares), Sadovaya Group (64,367 shares), and Industrial Milk Company (50,466 shares).

For specific results kindly see the table below, prices denoted in Polish currency (Zlotys).  Cheers – Jon

WSE WIG Index (total return index for Warsaw Stock Exchange listed companies): 43526.41 (-0.40%)

WSE WIG-Ukraine Index (total return index for Ukrainian listed companies):  703.18 (+0.92%) 

Ovostar Union NV (OVO PW):  101.00 (unch)

Kernel Holding SA (KER PW):  63.35 (+1.36%)

Agroton Public Limited (AGT PW):  11.19 (-0.97%)

Astarta Holding NV (AST PW):  65.90 (+1.38%)

Industrial Milk Co (IMC PW):  14.50 (unch)

KSG Agro SA (KSG PW):  12.99 (+0.78%)

Milkiland (MLK PW):  17.50 (+0.86%)

KDM Shipping Plc (KDM PW):  25.80 (+0.39%)

Coal Energy SA (CLE PW): 16.20 (-1.28%)

Sadovaya Group SA (SGR PW):  4.35 (unch)

Westa Intl Scientific Group (WES PW):  1.11 (+23.33%)

Warsaw Market Watch

Greetings from Kiev!  Here is this morning’s Ukrainian stock performance summary, from the Warsaw Stock Exchange, based on Friday’s closing bell.  As a whole, the Warsaw Stock Exchange performed flat on the day with a slight decrease -0.08% for its second slight loss day after two days of moderate gains.  Looking at Ukrainian equities in particular across the Warsaw Stock Exchange, they performed in line with the market and closed down 0.39%, led by losses in value for certain weighted names in the mining, agriculture and food production sectors.

For specific results kindly see the table below, prices denoted in Polish currency (Zlotys).  Cheers – Jon

WSE WIG Index (total return index for Warsaw Stock Exchange listed companies): 43701.32 (-0.08%)

WSE WIG-Ukraine Index (total return index for Ukrainian listed companies):  696.75 (-0.39%) 

Ovostar Union NV (OVO PW):  101.00 (-0.2%)

Kernel Holding SA (KER PW):  62.50 (-0.24%)

Agroton Public Limited (AGT PW):  11.30 (+0.36%)

Astarta Holding NV (AST PW):  65.00 (-1.22%)

Industrial Milk Co (IMC PW):  14.50 (-1.29%)

KSG Agro SA (KSG PW):  12.89 (-5.66%)

Milkiland (MLK PW):  17.35 (+1.98%)

KDM Shipping Plc (KDM PW):  25.70 (-0.39%)

Coal Energy SA (CLE PW): 16.41 (+1.05%)

Sadovaya Group SA (SGR PW):  4.35 (-3.76%)

Westa Intl Scientific Group (WES PW):  0.90 (+18.42%)

Ukraine Business News

Ukraine Poised To Become Leading World Corn Exporter
According to the calculations of the Association Ukrainian Agribusiness Club, based on the Food and Agriculture Organization (United Nations) data since 2000, corn yields in Ukraine increased annually by 2.3 tons per hectare, whereas the current global grain exporting countries (United States, Brazil, Argentina) increased their yields in the range of 0.8-1.4 kg per hectare.  During the past year, Ukrainian corn yields amounted to 64.4 tons per hectare, while in 2000 it stood at yield of 30.1 tons per hectare (e.g., doubling output).  Similarly, Ukrainian soybean productivity growth has increased greatly since 2000, at 0.68 tons per hectare annually, while the U.S. soybean yield growth for the same period is equal to 0.33 kilograms per hectare.  According to Dr. Alex Lissitsa, President of the Association Ukrainian Agribusiness Club, there is continued huge growth potential for Ukraine's agribusiness sector due to technology and farming methodology improvements, at a time when its global competitors have almost already touched their maximum crop production capacities. With continued productivity growth at 5% per year, Ukraine will be able to exceed corn exports by Argentina and Brazil, cementing a firm foothold in the second place after the United States - about 30 million tons annually - and growing.  (for more information see source article at www.korrespondent.net)  

Warsaw Market Watch

Greetings from Kiev!  Here is this morning’s Ukrainian stock performance summary, from the Warsaw Stock Exchange, based on yesterday’s closing bell.  As a whole, the Warsaw Stock Exchange performed slightly down on the day with a slight decrease -0.99% after two days of moderate gains.  Looking at Ukrainian equities in particular across the Warsaw Stock Exchange, they performed down 2.31%, led mostly by slight net decreases in value for certain weighted names in the agriculture and food production sectors.

For specific results kindly see the table below, prices denoted in Polish currency (Zlotys).  Cheers – Jon

WSE WIG Index (total return index for Warsaw Stock Exchange listed companies): 43737.02 (-0.99%)

WSE WIG-Ukraine Index (total return index for Ukrainian listed companies):  699.51 (-2.31%) 

Ovostar Union NV (OVO PW):  101.20 (-3.5%)

Kernel Holding SA (KER PW):  62.65 (-4.7%)

Agroton Public Limited (AGT PW):  11.26 (+1.9%)

Astarta Holding NV (AST PW):  65.80 (-1.1%)

Industrial Milk Co (IMC PW):  14.69 (unch)

KSG Agro SA (KSG PW):  12.20 (-4.2%)

Milkiland (MLK PW):  17.70 (+0.6%)

KDM Shipping Plc (KDM PW):  25.80 (+0.58%)

Coal Energy SA (CLE PW): 16.24 (-1.0%)

Sadovaya Group SA (SGR PW):  4.52 (+4.6%)

Westa Intl Scientific Group (WES PW):  0.76 (+24.6%)

Japan Approves New Renewable Energy Feed-In Tariffs

On June 18, Japan's Ministry of Industry approved the implementation of renewable energy feed-in tariffs.  These tariffs, set to last for at least 20 years, are among the highest in the world (see chart below) and they become effective from July onwards. Bloomberg New Energy Finance estimates that Japan's photovoltaic (PV) market alone could be worth at least 10 billion USD, with Japan poised to overtake Italy as the world's second largest solar energy market.

The new Japanese green tariffs require utility companies to purchase electricity from renewable sources, such as wind, solar, biomass, geothermal and different forms of biomass.  Japan's government views this requirement as a positive step towards reducing its historic reliance on nuclear power and thereby mitigate against a potential future "nature+nuclear" national catastrophe a la Fukushima.

Japan only generates about 1% of its energy from renewable sources at present, but analysts predict that the country should unlock at least 30 billion USD in fresh renewable energy investment by means of these new tariffs. It will be interesting to watch how feed-in tariff policies evolve in the USA and other major economies -- much work still needs to be done in order to reduce our global dependence on greenhouse gas emitting fossil fuels.

Cheers -- Jon

ECOSMART-2012 2nd International Forum of Clean Technologies in Kiev Ukraine

From the ECOSMART website (www.ecosmart-ua.com):

"In continuation of the success of the ECOSMART-2011 forum, which Ukrainian Event Awards titled as the best international event in Ukraine for the previous year, ECOSMART-2012 gathers top management of environmentally responsible companies and organizations, as well as owners and managers of “green” business, to create a powerful impetus for sustainable economic development and stimulation the development of new niches in the leading industries of Ukraine, development of high-grade segment of clean technologies in Eastern Europe."

This promises to be another great event this year, so if you haven't already RSVPd and you will be in Kiev during this time period, you should go for it!

Cheers
Jon

Renewable Energy IPO in USA - first of hopefully several during 2012

Greetings from Kiev!

It's a cold winter in Ukraine but a hot market, it seems,  for renewable energy companies tapping into the capital markets.  Two weeks ago, in climate change skeptical USA, an Iowa company named Renewable Energy Group Inc. completed its 72 million dollar IPO on Nasdaq (ticker: REGI).  While the book closed at the low end of the projected raise, the successful placement in January (typically a quiet month for IPOs) shows demonstrably strong continued investor interest in alternative energy as a growth market in America.  The global economic picture is not conducive to bull market placements at this time, with the market weighed down by macroeconomic concerns in the Europe and with other alternative fuel companies trading below their IPO prices last year (such as Gevo Inc. and KiOR Inc. and notably Solazyme Inc.)

Renewable Energy claims to be the largest producer of biodiesel in the U.S., using low cost feedstocks (such as inedible animal fat, used cooking oil, and inedible corn oil) to create fuel. Over the first 3Q of 2011, total revenue nearly quadrupled to $557 million compared to the same period a year earlier, but its loss widened to $27 million from $25 million in the 2010 period. 

This recent IPO underscores the growth potential in the alternative fuels sector, and it will be interesting to see how similarly situated companies in Central and Eastern Europe, with their superior access to feedstock and fuel supply inputs, can take advantage of the global capital markets to undertake their own IPOs and private placements.

Cheers from Kiev,

Jon

Happy 2012!

Greetings and happy new year to everyone!  I hope that this year will bring great tidings for the future of carbon trading and green energy in the USA, Europe and Asia.  Stay tuned for some news :)

Tentative New Climate Deal Reached In Durban

Greetings everyone from Ukraine!  Well what can I say, there was a surprise announcement late this weekend that a platform had been agreed to extend the Kyoto Protocol in principle.  Although the agreement is rudimentary at best and leaves much room for clarification on how to implement a future legally binding treaty, it's more than the zero result most people anticipated coming into the conference.  It remains to be seen if the USA - a sadly visible and increasingly isolated leader in the anti-climate change movement - will be shamed and cornered by the rest of the world to get its act together finally, and if China goes along too.  One thing that is clear, however, is there is a glimmer of hope where before there was only darkness.

As reported on http://www.ens-newswire.com/ens/dec2011/2011-12-11-01.html

DURBAN, South Africa, December 11, 2011 (ENS) - As dawn broke over Durban this morning, climate negotiators agreed to launch a new legally-binding treaty limiting greenhouse gas emissions that would apply to all 194 member governments of the UN Framework Convention on Climate Change. They also approved a second commitment period for the existing Kyoto Protocol and the launch of the Green Climate Fund.

The final package of agreements, known as the Durban Platform, was reached after intense negotiations that extended until 5 am this morning, more than a day past the official end of conference. 

UN Secretary-General Ban Ki-moon today welcomed the outcome, saying these decisions represent "a significant agreement that will define how the international community will address climate change in the coming years. 

"Taken together, these agreements represent an important advance in our work on climate change," Ban said, calling on countries to "quickly implement these decisions and to continue working together in the constructive spirit evident in Durban." 

The new "agreed outcome with legal force" covering all countries must be negotiated by 2015 and take effect by 2020 at the latest.

It must ensure that countries take measures sufficient to meet the goal agreed at last year's climate conference of keeping global temperature rise below two degrees Celsius over pre-industrial levels, which many scientists say could avert the worst impacts of climate change. 

Work on this instrument will start immediately under a new group called the Ad Hoc Working Group on the Durban Platform for Enhanced Action.

Ban praised the agreement to establish a second commitment period of the Kyoto Protocol from January 1, 2013, the day after the first commitment period expires. He said it will "increase certainty for the carbon market and provide additional incentives for new investments in technology and the infrastructure necessary to fight climate change."

Parties to this second period will turn their economy-wide targets into quantified emission limits or reduction targets and submit them for review by May 1, 2012.

"This is highly significant because the Kyoto Protocol's accounting rules, mechanisms and markets all remain in action as effective tools to leverage global climate action and as models to inform future agreements," said Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change.
Countries also agreed to implement the Cancun Agreements, which were created at last year's conference in Mexico. The new measures include setting up a Technology Mechanism that will promote access by developing countries to clean, low-carbon technologies, and establishing an Adaptation Committee that will coordinate adaptation activities on a global scale.

Ban applauded the launch of the Green Climate Fund and said he was gratified that a number of countries signalled their intent to contribute to it. The Fund was created last year to help developing nations protect themselves from climate impacts and build their own sustainable futures, but had not been launched. Ban had urged developed countries throughout the two-week conference to inject the necessary capital to kick-start it.
"This means that urgent support for the developing world, especially for the poorest and most vulnerable to adapt to climate change, will also be launched on time," said Figueres.

Achim Steiner, executive director of the UN Environment Programme, is encouraged by the agreements but said the real-world impact on the planet's climate is still uncertain.

"The big question many will ask is how this will translate into actual emission reductions and by when?" Steiner said. "Whatever answer will emerge in the coming months, Durban has kept the door open for the world to respond to climate change based on science and common sense rather than political expediency."

The latest "Bridging the Emissions Gap" report, coordinated by UNEP with climate modeling centers around the world, emphasized in November that the best available science shows that global greenhouse gas emissions need to peak before 2020.

The key question of the Durban outcome, said Steiner, is whether what has been decided will match the science and lead to a peaking of global emissions before 2020 to maintain the world on a path to keep a temperature increase below two degrees Celsius.

The United States has not signed on to the Kyoto Protocol, concerned that it does not cover high-emitting developing countries such as China and India. A big question in Durban was whether the United States, China and India would agree to be legally bound to limit their greenhouse gas emissions. In the final vote, all three countries did agree.

Although the Durban Platform sets the stage for a legally-binding agreement that does cover all countries, the U.S. supported it only reluctantly.

U.S. Climate Envoy Todd Stern told delegates, "This is a very significant package. None of us likes everything in it. Believe me, there is plenty the United States is not thrilled about." But he said the agreement formalizes important advances that would fall by the wayside if it had been rejected.

"We made it. EU's strategy worked. We got a roadmap that marks a breakthrough for international fight against climate change," tweeted EU Climate Commissioner Connie Hedegaard of Denmark, who chaired the 2009 UN climate conference in Copenhagen.

On Saturday, as the talks went into overtime, Hedegaard said of the intense pressure to reach agreement, "Finally we are getting to the crunch issues. And making progress. The time pressure is almost physically felt in the room. Nerve-breaking!"

Xie Zhenhua, head of the Chinese delegation, said, "The implementation of the Cancun Agreements and the Durban Outcome will not be achieved in a short run. A heavy load of work ahead on the post-2020 arrangement needs to be done in order to enhance the implementation of the Convention."

"The lack of political will is a main element that hinders cooperation on addressing climate change in the international community," he said. "We expect political sincerity from developed countries next year in Qatar."
The world's largest environmental group, the International Union for the Conservation of Nature, expressed optimism over the progress made in Durban.

Stewart Maginnis, IUCN's director of environment and development, said, "We had anticipated that Durban would be where the developed world would raise the bar on their current ambitions and all countries would purposefully commit to the development of a credible roadmap for deep and wide ranging targets for the comprehensive reduction of greenhouse gas emissions. This has been achieved, and steps have been laid out for a new agreement to be put in place by 2015."

"A new spirit of compromise spanning the developed and developing countries is an encouraging step forward," said Maginnis.

But other environmental groups warned that the Durban Platform is just another delay of effective climate action.

Greenpeace International Executive Director Kumi Naidoo said, "The grim news is that the blockers led by the U.S. have succeeded in inserting a vital get-out clause that could easily prevent the next big climate deal being legally binding. If that loophole is exploited it could be a disaster. And the deal is due to be implemented 'from 2020' leaving almost no room for increasing the depth of carbon cuts in this decade when scientists say we need emissions to peak."

"Right now the global climate regime amounts to nothing more than a voluntary deal that's put off for a decade," said Naidoo. "This could take us over the two degree threshold where we pass from danger to potential catastrophe."

Samantha Smith, leader of WWF's global climate and energy initiative said, "Governments did just enough to keep talking, but their job is to protect their people. They failed to do that here in Durban today. Science tells us that we need to act right now - because the extreme weather, droughts and heat waves caused by climate change will get worse."

"Some countries here, like the United States, showed they were not interested in supporting an ambitious outcome in Durban. The U.S. - afraid of the politics at home - fought over a few words, but missed the bigger story: limiting dangerous climate change," Smith said.

"Overall, the responsibility for this lies with a handful of entrenched governments - like the U.S., Japan, Russia, and Canada - who have consistently resisted raising the level of ambition on climate change. This is what brought us to this point.

"It is clear today that the mandates of a few political leaders have outweighed the concerns of millions, leaving people and the natural world we depend on at risk," said Smith. "Catastrophe is a strong word but it is not strong enough for a future with four degrees of warming."

The next annual UNFCCC Climate Change Conference is scheduled for November 26 through December 7, 2012 in Qatar. 

Kind regards from Kiev,
Jon

UNFCCC Webcast of Durban Conference of Parties, December 2011

Greetings from Kiev!

This week is a major week for emissions trading and battling climate change.  Nations from all over the world have gathered in Durban, South Africa to discuss the future of the Kyoto Protocol and carbon trading schemes.  The event is hosted by the United Nations Framework Convention on Climate Change, and addresses the future of CDM and JI under the Kyoto Protocol, as well as bilateral climate treaties that could arise after Kyoto's expiration in 2012.

You can find the podcast at the UNFCCC website to follow events on a rolling basis:  http://unfccc4.meta-fusion.com/kongresse/cop17/templ/play.php?id_kongresssession=4295&theme=unfccc

Kind regards
Jon

Largest Energy Deal of the Year Creates Largest Natural Gas Pipeline in USA

Greetings from Kiev!  As reported on world news services, the gas company Morgan Kinder (run by ex Enron chief Richard Kinder) made a cash and stock offer worth 21 billion dollars to buy El Paso Corp., another gas transit company... and this would result in a combined company having 107,000 kilometers of gas lines and becoming the single largest American pipeline operator.

The shift in company focus from exploration and production into gas transit would accomodate biogas as well, and could help instigate a nationwide shift from traditional fossil fuels to cleaner energy solutions.  For more information please see http://www.bloomberg.com/news/2011-10-16/kinder-to-buy-el-paso-for-21-1-billion-making-biggest-u-s-pipe-company.html

Kind regards,
Jon

Ukraine Green Awards

Greetings from Kiev!  This year's Green Awards in Ukraine will take place in November, with a ceremony and presentation of the best green projects in Ukraine this year.  If you would like to submit a project, learn more about green news, or show your support for alternative energy in Ukraine please see their link at http://www.greenawards.info/en

Cheers
Jon