Actuality February 18, 2008

The week February, 11-15 appeared very successful for the Russian market: first for the last month the market was closed in the week’s growth and added almost 7%. Thus, during all week optimistic moods prevailed on external floors, that allowed the American and European indices to complete the week with the steady growth within the limits of 1-2%. This promoted release of some news that weakened fears concerning two relevant questions that keep in suspense investors all over the world. It is deceleration of the USA economy, and also risks of ratings decline of the largest bonds of the country.

In particular, the last week it became known about possible support of the largest American insurers of MBIA and Ambac bonds. Warren Buffett declared about the willingness to reinsure municipal bonds to the sum $800 bln and that will provide additional defense to banks, on the balance of which these instruments are. Taking into account that lately the risks of ratings decline of the USA insurers grew steady, and rating agencies already revised some of them toward lowering, intentions of Buffett are just in time.

In addition, last week (February, 11-15) Ben Bernanke spoke before the USA Senate, where the head of Federal Reserve System (FRS) commented the current economic condition, and also shared the forecasts in relation to further economy growth of the country. On the whole Bernanke again marked the strengthening of deceleration risks of economic development, and also hard conditions on the loan market that negatively influence the economy growth of the country. However, he assured that FRS would render support to the economy, taking the proper measures, and now investors wait the rate decline on the nearest meeting of department that should take place on March, 18. If this happens, already in a month the American rate will make 3,0%.

In its turn, the USA Congress approved the bill draft, called to help the American citizens to manage the consequences of mortgage crisis. According to the document, for stimulation of citizens consumption, and also for business support will be allocated about $170 bln altogether. These measures should start working already from May of the current year.

All these added fervor to the Russian traders, and according to the results of five trading days RTS index grew by 6,32% up to 1989,25 points (1870,93 point as of February, 8). Most influence on RTS index rendered the common stocks of Gazprom (22,31 points), Rosneft (20,09 points) and Lukoil (20,03 points).

Thus, demand was mainly observed in the most liquid stocks that have been falling more than others in previous weeks. About this says the fact that the stocks index of the "second echelon" grew twice slower: for the period February, 11-15 it added only 3,09% up to 2489,89 points (2415,25 points as of February, 8).

For the week February, 11-15 trade volume of securities in RTS totaled $5,3 bln (RUR131,9 bln) taking into account all types of transactions, including over-the-counter ones (OTC). The leaders of RTS stock market turnover became the common stocks of OJSC MMC Norilsk Nickel, with which were concluded transactions to the total sum $84,8 mln for the week (25,24% from the total RTS turnover), on the second place are the common stocks of RAO UES of Russia with the result $58,2 mln (17,31% from the total turnover), and the top three of the most week popular securities close the common stocks of Gazprom – in RTS they have been traded for $47,4 mln (14,12% from the total turnover).
The leaders of growth on RTS became the common stocks of Mechel that added 19,58% up to $28,7, the common stocks of OJSC Korshunovsky GOK, the growth of which totaled 19,36% up to $3175, and the common stocks Rosneft, grew by 15,70% up to $7,81.

The leaders of decline on RTS became the common stocks of Irkutskenergo, the price decline of which totaled 7,22% up to $0,9, the common stocks OJSC CenterTelecom lost 6,47% up to $0,65, and the preferred stocks of Sberbank of RF fell by 4,55% up to $2,1.

The last week the positive dynamics showed almost all sectors of economy presented on the Russian stock market. Most growth of liquid securities showed oil and gas and metallurgical sectors: RTS Index "Oil and gas" grew by 8,50%, and RTS Index "Metals and extraction" – by 6,87% as compared to the end of the previous week

Hugo Chaves indisputably rendered support to the oil and gas sector, and again compelled oil traders to feel deeply the closeness of $100 mark per barrel. Last week the state company of Venezuela threatened at first, and then indeed stopped supplies of oil to the USA after on demand of ExxonMobil were frozen the Venezuelan assets to the sum $12 bln. So, by Friday oil quotations of Brent mark attained $95 dollars and added more than 3%.

In the metallurgical sector the majority of stocks added 5-7% on the average. Better than the market looked the stocks of Novolipetsk Steel (NLMK) and The Magnitogorsk Iron and Steel Works OJSC (ММК) that grew in price by 8-9%. Concerning the "second echelon" of metallurgists, here euphoria proceeds in coal industry. So, already two weeks running Belon Group securities finish the week with the growth more than 15%. From the beginning of February the company securities grew almost by 50%. The securities of Raspadskaya OJSC grew by 6% for a week, and set the absolute historical maximum more than RUR 190 per stock.

High activity was observed at Mechel subsidiaries: the stocks of Uzhnyi Kuzbass Coal Company and JSC Korshunovsky GOK (Mining and Processing Works) grew by 14% and 19% for a week that is related to expectations of forthcoming IPO of Mechel raw material segment. The new company (Mechel Mining) can be estimated at $17-20 bln, while presently capitalization of all Mechel Group totals more than $15 bln. "We suppose that stocks of Mechel and its subsidiaries from the mining and processing segment possess further growth potential", says Vitaliy Lakeev, the analyst of Region Group. "In particular it concerns securities of Uzhnyi Kuzbass Coal Company and JSC Korshunovsky GOK". It is not surprising: this year the 40-50% price growth for iron ore and coke is expected.

Among the separate week events the most important is, undoubtedly, the beginning of trades of HydroOGK on MICEX and RTS stock exchanges. In the first days HydroOGK securities were traded on the stock exchange at the price $0,0835-0,085 (RUR 2,1), that is a bit lower than estimation of stocks during OTC transactions (RUR 2,2) that passed from the beginning of the year. Thus, investors estimated the company approximately at $720 per kilowatt of installed capacity that is more than 30% higher than the state estimation of assets ($550 per kilowatt).

After the slump within four weeks running, during which RTS index fell by 20%, the Russian market, as it seems, attained that level of reacquisition, on which investors, for the sake of profit temptation, are ready temporally to turn a blind eye to risks, related to the unsteady situation on foreign markets. The last week on the market it is possible to watch the steady bounce from the level at 1870 points. Thus, the volume of trades was quite high and that can testify about the turn tendency on the market. One should not forget about nonresidents for whom the Russian market is a favorite among the countries with emerging markets. They also closely watch after the Russian market waiting for the best moment for the entrance.

So, if nothing out of the ordinary happens on foreign markets, the Russian market can make an effort to overcome the level at 2040 points in the nearest two weeks. High oil prices can help it here, and also inflow of facilities of nonresidents – in fact near at hand are elections of the Russian president that will pass quietly and predictably, and will, indisputably, add the foreign investors confidence in political stability in Russia.