Updated September 4, 2008

   The Russian stock indices can’t recover because the prices’ drop at the primary floors has encouraged the new wave of the securities’ sale. The continuing outflow of the foreign investors’ facilities from Russia on the background of the rate growth of the US dollar to the key world currencies resulted in the ruble rate fall to 25,17 rub/$. All these factors combined frighten the buyers from Russia’s assets off.

   On September, 3, Russia’s currency and stock markets were regaining the prices’ drop at the commodity floors. Within the last week, August, 25-29, the price of futures contracts on WTI crude fell by 8,7% and settled at the mark of $108,48 per barrel, the troy ounce of gold fell by 2,8%, and the prices for nickel went by 7,2% down.

   In the present situation, the international investors revise their strategies and reduce the securities of the primary countries in their portfolios. As it came out on September, 3, the US Ospraie Management Investment Company (owned partly by Lehman Brothers) took the decision on closing its largest hedge fund – Ospraie Fund. The company specializes in the investments into the primary companies’ stocks. Since the beginning of the year, the assets of the hedge fund lost 38,6% because of the prices’ slump for primary products, thus, the major part of this drop (26,7%) took place in August. At the beginning of August, the fund’s capital totaled $2,8 billion.

   On the background of the continuing political risks in Russia caused by "Mechel’s case" and the military operations on Caucasus, the foreign investors continue funneling their facilities out of the Russian assets. The correction at the commodity floors reduced severely the attraction of Russia’s stock market the capitalization of which for 50% consists of the companies of the primary sector. According to the trades’ results held on September, 3, the MICEX index lost 3,2% and settled at the mark of 1324,99 points, the RTS index lost 4,25% and settled at 1589,19 points. The securities of the primary companies became the record-holders of the collapse. Rosneft, Surgutneftegaz, Gazprom and Lukoil lost 3,2-4,2% on MICEX (Moscow Interbank Currency Exchange). The stocks of Severstal lost 6,94%, and Raspadskaya – 6,45%. According to Troika Dialog’s top-trader Timur Nasardinov, the foreign investors were making the core sales.

   The continuing facilities’ outflow from Russia influences negatively on the ruble rate. On September, 3, its rate to the bi-currency basket fell by RUR 0,30 and settled at RUR 30,27. Thus, the ruble fluctuations to the US dollar were relatively major: in the morning, the ruble rate to the US dollar fell by RUR 0,43 and settled at RUR 25,27, and it is the maximum level since autumn, 2007.

   On September, 3, the market participants observed the panic demand for the US dollar. According to the deputy head of Metallinvestbank’s treasury Sergey Romanchuk, in the morning, the large foreign hedge fund purchased several billion at once at the market. "This deal encouraged the further purchases of the participants, and as a result the volume of deals exceeded $5 billion", he explains. When the dollar rate to the ruble grew to RUR 25,25, the Russian exporters started selling the currency, as he says. The dealer estimated the volume of their deals at $1 billion. The dollar was RUR 25,17 at the trades’ closing.

   "The investors sell Russia’s securities and buy dollars, and that reduces the ruble rate", as Renaissance Capital’s analyst on strategy Ovanes Oganisyan explains.

   The US dollar continues strengthening at the world currency market as well. "The euro falls because of the negative statistical information coming from the Euro area, thus, the less pessimistic signals come from the USA", as the head of ING Wholesale banking’ department for conversion operations Aleksey Borichev explains. He adds that the dollar’s price grows to the key world currencies.

   Russia’s ruble is falling one and a half months already: since July, 14 the ruble rate to the US dollar fell by 8,73%. During this period, the European currency fell to the American one by 9%. However, the change of the ruble rate to the bi-currency basket totaled 3%. The market participants explain this by the Central Bank’s extension of the currency corridor within the framework of which it sustains the Russian currency rate. According to the market participants, on September, 3, the Central Bank didn’t sell the currency. "After the Central Bank extended the fluctuations of the ruble rate to the basket, the rate became very unpredictable", as the head of VTB Bank’s analytical department of treasury Nikolay Kascheev supposes.

   In the analysts’ opinion, the situation at Russia’s stock market being under the pressure of the primary sector continues to influence negatively on the ruble rate. "The potential of the ruble sales is not over yet", Nikolay Kascheev is convinced. In his opinion, the external political background will encourage its fall. "The continuing sharp statements about Russia aggravate the relations with the West", as Aleksey Borichev marks. Even the prospective demand of Russia’s internal investors can’t compensate the outflow of the nonresidents’ facilities, as the top-analyst on the investment strategy of VTB Bank’s capital Ivan Ivanchenko adds. "Within the nearest couple of days, the technical recovery can take place at Russia’s market", as Timur Nasardinov supposes. "However, "the fresh money" is required for the considerable recovery, but there are no buyers at the market now".