Updated August 29, 2008

   Currently, the politicians are manipulating the market. The global crisis that resulted in the volatility growth, the capital outflow from the countries with the emerging economy and the aggravating relations with the West led to the range of new drops at the Russian stock exchanges. What the players should wait for – either the quotations’ recovery or the new "bear" cycle?

   On the one hand, it is the right time to fill the portfolios up with the cheap stocks contributing to the indices growth. On the other, high political risks challenge the future prospects of the Russian securities. The experts on bonds prefer to prepare for the worst. The corporations require the financing that the market can’t handle with and remains at the current levels. The profitability of the state securities can reach huge figures that the market hasn’t seen for years. The corporate segment can face some serious problems with the liquidity. In August, the dollar counterattacked the euro at the international currency market. So, this trend will probably continue taking to account the weak economy of the Euro area.

Roman Kalinin, the head of RosEvroBank’s department for stock operations of securities management

   Within the last several months, we were observing the tendency of profitability growth at the Russian debt market. The physiological reasons are prevailing – the distrust of some segments of borrowers, of the financial institutions and the companies of the second and third tiers foremost. Currently, we are observing some serious economic assumptions of this process aggravation. On the one hand, the Central Bank tightens the monetary policy that resulted in the numerous growth of the refinancing rate that assists the profitability growth of the bond issues. On the other, the situation at the currency market stimulates the capital outflow from the ruble debt sector. The geopolitical component should be mentioned as well, since it makes the nonresidents to conduct sales. Thus, there are all assumptions of the aggravated quotations’ drop in autumn. The profitability of the state securities can easily reach 7,0-7,5% per annum by the short-term issues and 9,0-11,0% by the long-term issues. The analogical tendency will be observed in the corporate debt segment on the background of the almost zero liquidity in the bonds of the second and third tiers, as well as the drop of the overall investors’ activity. The companies without the credit history would hardly place loans, even if they offer high rates.

Aleksey Khmelenko, the director on investments of Everest Asset Management MC

   The situation at the bond market is characterized by the uncertainty that is preconditioned by two core factors. The first is the corporations’ financing requirement that is provided with the state facilities foremost and partly only. New large players come to the debt sector because of the alternative sources’ shortage, and in September a dozen of loans will be granted. The market will face the serious changes: probably, the profitability grows by approximately 2%. Therefore, under such conditions, the first tier grows within a couple of weeks. The third tier will either "die" or will settle at the rates’ level of 16,0-20,0%, and it means that it will be almost closed for the companies with the low margin. The Central Bank could assist filling the market with the liquidity, but there is another task on its agenda – the fight against the inflation. Thus, taking to account the bank’s traditional surplus of available facilities, we think that by September-end the price of the daily loans settles at the level of 10,0-12,0%. It seems as October is a boundary line, and when the bond market crosses it, it will definitely change. So, what should we wait for? Thus, we can speak about the second factor here, about the world situation. If the loan crisis in the USA moves to the active phase and the Russian authorities ease the tension in the foreign policy, the interest in the investments into Russia will recover probably.

Svetlana Palyanova, Advanced Research chief executive

   The scenario of the RTS index fall to 1200 points is quite possible. The unexpected freezing of relations between Russia and the West predetermines the negative attitude. If the today’s republican administration of the US president didn’t take any direct measures against the escalation of the conflict on Caucasus, it would take advantage of the current situation and would try to keep the high tension to the presidential elections, since the avid anti-Russian speeches became the core ace of the republican candidate John McCain. If we take to account the tough position of the Russian authorities that declared about the possible break of relations with NATO, as well as about the break of the range of agreements that were reached during the talks on the entry to the WTO, the Russian market should expect the new wave of the capital outflow. The latest expectations of the quick termination of the war conflict vanished, when Russia recognized the independence of South Ossetia and Abkhazia. The severe growth of political risks replaced the concern over the US economy that balances on the brink of recession. However, the continuing drop of the American market aggravates the possibility of the further quotations’ drop in Russia. Still, there is only one positive thing – the confrontation with the West is unfavorable for the both parties in the long-term prospect, and it means that at the year-end the Russian stock indices may grow on the background of relations’ stabilization.

Mark Rubinshteyn, Metropol Financial Company top-analyst

   The further move of the ruble to the dollar depends almost fully on the dynamics of the core currency pair at the Forex, where the phenomenal growth of the dollar to the euro was observed within the last month. According to the economic statistics from the USA and the Euro area, we can assume that the trend of the dollar strengthening and the euro weakening keeps in the nearest future. So, in July the European economy demonstrated the negative dynamics for the first time since the existence of the common currency, and GDP grew by 4% only in annum terms. This fact raises expectations that the European Central Bank reduces the interest rates in order to stimulate the economic growth. In the USA we, vice versa, watch the continuing recession. The index of the consumers’ trust grew from 51,9 in July to 56,9 in August. In 2Q the prices for the real estate fell by 2,3% only as compared to the major fall of 6,8% in January-March. This data shows that the Federal Reserve System (FRS) can tighten the policy and move to the increase of the interest rates in order to fight against the inflation. Such expectations can result in the price rise of the US national currency. By September-end the dollar may strengthen insignificantly at the Russian market to the level of 24,85-24,95 to the ruble, in October the rate settles at 24,55-24,70 to the ruble.

Denis Mitsevich, the dealer at the Forex from OTP Bank

   The participants of the currency market face the dire situation: the volatility is still high, and the prospects of the stabilization are quite vague. There is a great number of factors that can result in the agiotage and in the unexpected actions of the trades’ participants. Last week the dollar updated the half-year maximum to the euro after the negative news about the macroeconomic indices of Germany has been announced, however, it recovered some positions after the statistical information about the USA was announced. It is obvious that investors are watching intently the political background as well. The situation on Caucasus influences on the overall Russian financial market, and on the stock floors first of all. It is hard to guess and to analyze the mood of the players under such conditions. We think that in the mid-term prospect the dollar continues strengthening to the key world currencies, thus, high volatility will accompany this process. The main thing for the investors is to watch the publication of the macroeconomic data and the political situation in order to adjust their vision of the market.

Boris Soloviev, deputy chief executive of Agana MC

   The situation at the stock market depends on the conflict with Georgia and on the success of our diplomats. If the position on Caucasus doesn’t aggravate or Russia’s image, at least, doesn’t change in the eyes of the world community, the indices will recover. The oil prices will assist the situation, if in September OPEC cuts quotas on the extraction. We shouldn’t eliminate that the State Duma will introduce the issue about the loosening of the tax policy. Besides, autumn is a traditional period of the Russian securities’ recovery. If we take to account that the majority of them are fundamentally attractive now, the RTS index can recover to 1800-1950 points, and the MICEX index – to 1450-1550. The investors will stop probably to react so violently to the news from Caucasus. However, the situation will not be so positive, if Georgia continues the military operations with the assistance of the transatlantic patrons. In addition, the external negative background influences on the quotations. It seems as the FRS will not raise the rates despite the accelerated inflation. We should remember also about the problems in the world financial sector. If the tension keeps, the market can settle at 1350 and 1150 points by the RTS and MICEX indices respectively. I think that the government will provide some sort of support for the market.

Sergey Karykhalin, the head of Capital MC analytical department

   The investors have convinced again of the high risks related to the investments in the Russian securities. The fall was predetermined by the factors that don’t permit expecting the rapid quotations’ recovery. Within the last months, the investors were funneling facilities out of the emerging markets and were cutting investments in the securities of the companies of the materials sector because they were afraid of the prices drop on the account of the deceleration of the world economic growth. Besides, the military conflict in Georgia and the aggravation of the confrontation with the western countries affected the Russian assets. It is a well-known fact that it is much easier to break off the relations of the investors, than to repair them. We should hardly reckon on the quick capital return funneled out of Russia on the background of the conflict. The conservative buyers will be coming back to the market as the political situation stabilizes. As for the speculative players, hedge funds for instance, they will take advantage of the opportunity to purchase cheap stocks expecting the recovery. We should underline OPEC’s meeting on September, 9 among the important forthcoming events. The countries exporting oil will indicate probably that they are ready to cut deliveries, if the price of one barrel continues falling. Still, the political news will influence mainly on the situation. We expect the tension drop and the gradual recovery of the trust in the market.

Sergey Bulygin, the deputy chief executive of Interfin Capital MC

   If we take to account the repurchased Russian stocks and the business activity’s growth expected after the summer vacations end, in autumn we will see that the correction goes up. Still, the overall high volatility of the quotations at the stock market keeps. Firstly, the uncertainty with the US economy will assist. The probable deceleration of its growth rates will affect negatively the investment climate in the whole world. Secondly, the geopolitical risks related foremost to the situation in South Ossetia and to the probable intervention of NATO’s troops to Iran grew sharply. At the same time, the situation at the materials markets is favorable for the countries-exporters, and P/E ratio of the Russian companies is one of the lowest in the world today. Therefore, the Russian market has the huge potential for growth. Thus, if the political tension weakens, the quotations’ recovery of the core "blue chips", Gazprom’s stocks foremost, is quite probable. If we take to account the entry of RusHydro’s securities to the clearing basket of the MSCI indices, we should expect the price rise of the energy sector’s stocks as well.