Foreign investors to come back to Russia's market

Updated September 22, 2008

   The foreign investors come back to Russia’s stock market. Within the last week, September, 11-17, the facilities inflow to the investment funds exceeded $76 million. The measures on the stabilization of the situation at the financial market undertaken by the state encouraged this process. However, the market participants consider that the facilities belong to the stock speculators mainly, and they can be funneled out of Russia at any moment.

   According to the data of Emerging Portfolio Fund Research, within September, 11-17, the capital inflow to the funds investing in Russia and the CIS countries reached $76,5 million. This index has exceeded 1,4 times the facilities volume funneled out within the preceding week ($55 million). The three-month period of the continuous facilities funneling out of Russia’s equity market by the nonresidents has finished. "We have observed finally the confident purchases made by the nonresidents", Uralsib Company’s Vice President Ilya Lobanov marks. "The major part of them was fixed, when the trades on the Russian floors had been suspended". According to the head of Metropol Financial Company’s department for operations at the stock market Alexander Zakharov, the foreign hedge funds started to buy within the first week of September, and last week, such purchases had the systematic character. At the same time, according to the calculations of the Bank of Russia’s first deputy chairman Aleksey Ulyukaev, the September index of the overall capital outflow from Russia will equal or will be higher than the August index of $4,6 billion.

   Russia’s private investors took interest in the Russian market as well. In Kapital MC fixed the capital inflow exceeding significantly the level of the previous days. The Company’s chief executive Vadim Soskov marked that "the announcement about the state backing of the market restored the investors’ confidence". The head of UFG Asset Management’s department for pooled investments Igor Ryabov confirms the growing interest in the mutual funds, however, he marks that "it doesn’t go about some kind of excitement concerning the mutual funds".

    The facilities inflow to Russia’s market was taking place on the background of the nonresidents’ withdrawal from other BRIC countries (Brazil, Russia, India, and China). Within the period of September, 11-17, $117 million was funneled out of India, $185 million - out of Brazil, and $175 million - out of China. "Within the overall period of the crisis, the funds funneled much more facilities out of Russia as compared to other regions, and as a result, Russia’s market suffered the most, and therefore it is the most attractive now", Ilya Lobanov explains.

   The return of the investors to the Russian market was taking place on the background of the overall situation worsening. The oil prices drop lower $90 per barrel, Lehman Brothers bankruptcy, the takeovers of Merrill Lynch and Morgan Stanley, as well as weak macroeconomic information coming from the USA have frightened the investors worldwide. The major failures to execute repo agreements because of the liquidity shortage aggravated the problems of Russia’s stock market. Due to the panic sales that took place during the first two days of the previous week, the top Russian indices lost 16-23%.

   "It seems trivial, but, when Russia’s investors were selling their assets in a state of panic, the foreign investors, understanding that Russia had the technical collapse, were buying them", Sputnik MC’ director on investments Vladimir Malkhanov said. "When it came out that Russia’s authorities allocate the facilities to back the liquidity, the foreign buyers became more interested in the market". On Wednesday and Thursday, September, 17 and 18, the volume of trades at the LSE (London Stock Exchange) and the NYSE (New York Stock Exchange) totaled $3-3,5, thus it exceeded the indices of the previous four weeks 1,5-1,7 times. The state-owned securities (VTB Bank, Rosneft, Gazprom) were in high demand. On Thursday, September, 18, when the Russian floors were closed until the Federal Financial Markets Service (FFMS) issued the special report, the depositary receipts of the majority of the Russian companies traded in London grew by 4-23%. On Friday, September 19, the trades at the Russian stock exchanges, as well as the purchases, resumed. The rapid quotations growth has resulted in the double suspension of trades. According to the daily results, the RTS (Russian Trading System) index added 22,4%, and settled at the mark of 1295,91 points. The MICEX (Moscow Interbank Currency Exchange) index grew by 28,7%, and settled at the mark of 1098,95 points. Thus, the repo operations continued until 22.00 Moscow time at the MICEX. The trades volume of the western exchanges exceeded $3,2 billion.

   Despite the measures on the stabilization of the market situation undertaken by Russia’s government, analysts consider that in the nearest month, the investors will continue to funnel their facilities out of Russia. "Despite several days of growth, it is not eliminated that foreign investors will wish to fix the profit", Alexander Zakharov marks. Russia’s private investors "were also buying the shares for the short-term prospect", Mr. Soskov supposes.

   The determining factor for the market is still the world economic situation and the financial system, as well as the situation development at the internal financial market. The advisor to president on the economic issues Arkady Dvorkovich declared already that by the year-end, the budget allocates RUR 250 billion to purchase the stocks. The analogical sum will be invested next year if required. According to Russia’s Finance Minister Aleksey Kudrin, the facilities will be directed to buy back the stocks of VTB Bank, Gazprom and Rosneft. "The government interventions in the stock market will result in the quotations growth in the nearest future", Vladimir Malkhanov considers. "However, in the long-term prospect, they can result in the cut of the foreign investors’ interest in the Russian market, since the control of the state means extra risks for them".