Actuality October, 15, 2007

According to non-residents, the main investment constituent of the Russian economics is still Vladimir Putin's figure.

During the week finished on October, 10, 2007, foreign investors put a record volume of means to the Russian stock market – $140 million. Analytics wait for the further increase of investments that is promoted by stabilization of the world financial market and rise of political certainty in Russia.

Underestimation of the Russian market in comparison with other emerging markets makes it one of the most attractive.

Last week there was record inflow of funds of foreign investors on the Russian stock market. During the week that finished on October, 10th, according to Emerging Portfolio Fund Research, inflow of funds which invest in Russian stock markets and the CIS (Commonwealth of Independent States) countries reached $140 million that is a record value for the last two years. Non-residents invested more only in February, 2006. Inflow of funds continues the fifth week in succession, for four previous weeks it made $65 million. From the beginning of October RTS index has grown by 4,4 % and almost every day shows new historical maximums. Recently it reached 2174,45 points, by 13 % more than the value of the beginning of the year.

Non-residents started to return not only to the market of the Russian stocks, but also to the market of debt instruments.

Their presence was marked at auctions of bonds placement of EMB (External Mercantile Bank) and Rosselhozbank (Russian Agricultural Bank). “Since the moment of the liquidity crisis peak, which fell on the second half of September, the income of the majority of bond issues of the first and second echelon has reduced by 0,5 %”, the analyst says. According to other analysts, the additional factor which urges on non-residents’ interest in Russian stocks is stabilization of ruble-to-dollar rate.

“It stimulates the foreign capital inflow on the Russian stock market”. Only during the first ten-day period of October the Central bank bought currency from non-residents for $4 billion. So long as the Central Bank does not manage with the problem of inflation curb at the predesigned level, stabilization of ruble-to-dollar rate will continue. Stabilization of ruble is the most effective method of slowing down inflation.

Until recently the foreign capital inflow had the formal character.

It was connected with political risk after the government resignation, especially on the threshold of parliamentary and presidential elections. This factor is one of those which keep non-residents from investing in Russia.

Until recently the western investors did not have the clarity concerning developing of political situation in Russia that raise doubts expressed in delay of investments.

The signal for foreign investors to buy the Russian stocks became the decision of

the President Vladimir Putin to head the list of “United Russia” (the political party) at the elections to State Duma.

“The decision of the president was accepted as the fact of saving of the existing deal and led to the decrease of political risks”. In turn, the decrease of political uncertainty in the country led to reappraisal of risks by hedges-funds and the capital inflow. Besides, the decision of the president concurred with the beginning of the new fiscal year in the USA. Foreign funds used this situation and extended new quotas to Russia. Therewith this year the Russian stock market has hardly lost the markets of the majority of developing countries. In the second quarter the Russian indexes even entered the twenty of outsiders on dynamics among developing countries. While indexes of Brazil, India and China have grown for 30-120 %, Russian ones have added about 10 %.

Because of this backlog the stocks of the Russian companies became undervalued in comparison with analogs on other emerging markets. According to analysts, this discount is saved till now.

According to the estimations of analysts, the companies of oil and gas sector are on the average traded for 16 % more low-cost, than their analogs on emerging markets.

The discount of the companies of metallurgical sector reaches 43 %. “The psychology of funds is the searching for the most undervalued assets and starting to invest in them.

Meanwhile in the autumn the conjuncture of the raw market rather favors the Russian companies. Petroleum prices have reached again the historical record: futures for American oil WTI were traded more than $84 for a barrel.

Analysts consider that till the end of the year the RTS index will reach 2300-2600 points. In the fourth quarter of inflow of foreign funds will continue, and soon it is possible to expect for the rally before Christmas.

Other analysts are less optimistic and expect RTS index at the level of 2150 points at the year-end, despite the fact that what it has already exceeded this index. Everything can be spoilt by the decision of Federal Reserve System of the USA (FRS) at the proximate meeting.

If a discount rate will be left unchanged and the regulator

will give to understand in commentary that it can be increased again, there is expected the global correction of the markets.