Actuality October, 2007

By the end of 2006 the stock market of Russia not only got back the summer slump, but also it established a new record: the most popular indicator of domestic stock market — RTS index —went above the level of 1870 points. For this year the index has grown by 60 %. The polled experts doubt, that in 2007 the stock market will demonstrate the same high rates of growth. In their undivided opinion, at favorable conditions the share index can rise approximately by 30 % up to 2400 points by the end of 2007, and if the economic situation isn’t favorable, the market can go down to 1500 points.

What is Good?

Experts consider stable oil prices to be the favorable factor. The fortune of the Russian market essentially depends on them. This relation depends on that the lion’s share of operations (60 %) on the Russian market is carried out by foreign investors – pension, insurance, investment funds. Making a decision on investments, foreigners are guided by the index of emerging markets — MSCI BRIC. This index includes four countries: Brazil, Russia, India, China (BRIC), and each has its own weight. The share of Russia is 20%, of Brazil – 35%, of China – 26%, of India – 19%. According to these rates the western investors buy stocks of the companies of BRIC countries. Capitalization of the companies, on which in the issue the index value is calculated, has to exceed $200 million. Almost one hundred of Chinese companies and about three dozens of Russian ones meet the requirements. That is the reason of low share of Russia in the index. The overwhelming majority of the companies (about 60 %), which represent the Russian Federation in MSCI BRIC index, relates to oil and gas sector. This, in fact, explains sensitiveness of the Russian market to oil price movement. Even bank stock quotes react to valuation changes of “black gold”. It is almost impossible to predict its price movement. It is similar to fortune-telling by coffee grounds. And events of this year-end are striking example of that.

War Will Not Impede

The majority of market participants and experts have expected oil price increase in connection with reduction of oil extraction by exporting countries of oil OPEC since November, 1 by 3,6 % – to 26,4 million barrels a day. Against all expectations oil continued falling in price. And this event practically didn’t affect the Russian stock market. Market also was sluggish after the OPEC statement about another reduction of extraction since February, 1st, 2007 by 0,5 million barrels a day. Thus, “the threats” of OPEC do not frighten the market, but it reacts by price increase to the worsening of political situation in the Middle East.

Putin Is the Guarantor of Investments

The main feature of the coming year is the activation of political life: elections to the State Duma of the Russian Federation are planned for the end of the year, and at the beginning of 2008 re-elections of the president of the country will take place. There are few to believe that after elections to the State Duma the political situation in the country will change radically. And the present situation, from all the symptoms, suits foreign investors, so the political risks shouldn’t be taken seriously. There is no doubt that, in general case the political risks are one of the most significant factors, influencing financial market situation. However, the main thing that worries investors from this point of view is predictability, i.e. lack of leaps in political sphere. Taking into account the stability of political situation in Russia formed during the last years and lack of any serious opposition forces, the forthcoming the State Duma elections and president elections hardly fill the western investors with apprehension. At the same time instability in world raw and the currency markets will undoubtedly remain a considerable risk. If unfavorable development of events is noticed there is a hazard of decrease of RTS index to 1500-1600 points. According to the technical analysis, near to level of 1800 points on RTS index there is a fair strong support. To have a breakdown of this level serious reasons are needed.