STRUCTURE AND DYNAMICS OF PORTFOLIO INVESTMENT INFLOWS INTO DOMESTIC CAPITAL MARKETS

Abstract

The article examines the structure and dynamics of portfolio investment inflows into domestic capital markets of Ukraine over the period of 2010–2025. The methodological foundation of the analysis rests upon Ukraine's balance of payments and international investment position statistics compiled by the National Bank of Ukraine in accordance with the sixth edition of the International Monetary Fund's Balance of Payments and International Investment Position Manual (BPM6). The study employs a comprehensive approach combining time-series analysis of portfolio investment flows, sectoral decomposition of liabilities, and comparative assessment of instrument composition within the financial account. The research reveals a pronounced cyclical pattern of portfolio investment flows driven by both internal macroeconomic factors and external shocks, including the geopolitical crises of 2014 and 2022, the COVID-19 pandemic, and sovereign debt restructuring processes. The analysis establishes the absolute dominance of debt securities, which accounted for over 80 percent of total portfolio investment liabilities throughout the entire period, while equity instruments remained a marginal channel of foreign capital inflow. The general government sector was identified as the predominant recipient of portfolio investments, with sovereign Eurobonds and domestic government bonds (OVDPs) forming the core of portfolio liabilities. It is demonstrated that the underdevelopment of the corporate segment of the stock market narrowed the channels of foreign portfolio capital inflow to a single instrument — OVDPs — creating a monoculture model characterized by extreme volatility of flows. The portfolio of non-resident OVDP holdings fluctuated from a peak of 116 billion UAH in 2019 to approximately 16 billion UAH in early 2026, representing an 86 percent decline. The study substantiates causal links between the degradation of the domestic stock market and the restriction of foreign portfolio investment channels. The 2024 sovereign debt restructuring involving 20.5 billion USD of Eurobonds fundamentally altered the structure of external portfolio liabilities. The practical value of the research lies in identifying preconditions for the qualitative transformation of portfolio investment structures in the medium term, including institutional reforms, EU acquis harmonization, and the growth of the domestic investor base.