Financial Izvestia (Moscow), May 07, 2002

The Russian stock market has been experiencing impressive growth for more than six months in a row without any serious corrections. The RTS index has more than doubled over the past half a year and even surpassed the record high profits of 2001. However, investors had time to fix profits too - the main Russian stock index was fluctuating without noticeable changes over the first two months of this year. It experienced a sideways trend, which allowed not only for the possibility to fix profits and re-open long positions at lower levels but also to speculate for a fall. A rally was observed on the Russian stock market again at the beginning of March. As a result, Russian stocks almost hit 400 points in the RTS index. This level was named in the most optimistic analytical forecasts in January as the aim for the stock market that could be reached by the end of the year. This significant and long upsurge was caused by a combination of several favorable factors. It became clear at the beginning of spring that the US economy was recovering at a faster pace than it had been expected earlier. This means that the threat of a world recession, which could be provoked by a protracted US crisis, is becoming less real. Despite the fact that stock indices in industrialized countries are not demonstrating stable growth, raw material markets are showing signs of recovery, and this factor is much more important for Russia at present. Even the US protectionist measures on ferrous metals, which nearly led to the poultry-steel trade war, did not have a serious impact on the rising tendency on the Russian stock market. These negative factors were more than compensated for by the situation on the oil market. The war in the Middle East, periodical announcements of Arab countries, first of all Iraq, about response measures on the oil market, the threat of a military campaign aimed at overthrowing Saddam Hussein's regime and, finally, an attempted military coup in Venezuela have been keeping oil prices at levels favorable for exporters fo r a lot time. That is why concerns about the implementation of the Russian 2002 budget were replaced by optimism - so far, the situation was developing even better than stipulated in the optimistic economic forecast prepared by the Economic Development and Trade Ministry for this year. Impressive results of the Russian stock market last year and in the first quarter of this year attracted the attention of foreign investors. Analysts from the Aton Capital Group stressed that "a rise in Russian stocks this time was accompanied by a significant fall in US stock indices. This can be perceived as evidence that global funds have come to the Russian market in search of a 'quiet harbor' for long-term investments, as Russia suits this role in the best way." This role was largely promoted by international rating agencies, which were racing one another increasing credit ratings of Russia, in general, and separate Russian issuers, in particular. Standard & Poor's, Moody's, Fitch Ratings were generating positive news for the Russian market during the whole of April and even during the May holidays, when all business life dies in Russia. One of the most important events was the listing of YUKOS stocks among indices of Morgan Stanley Capital International (MSCI). As a result, Russia advanced 0.4 percent to 3.9 percent in the index of emerging markets (MSCI Emerging Markets Free). Rating agencies were improving not only their evaluations of Russian fuel and energy enterprises, which was natural due to high oil prices, but also of banks and Russian telecom companies. The IPO of Internet Holding RosBusinessConsulting was a success too. Despite low estimates of the company's value, there was no end to those wishing to invest in the Russian Internet and the company was oversubscribed. In fact, the world is experiencing another "fashion for Russia", which seems the most promising among emerging markets.

At the same time, the threat that negative tendencies observed on the US stock market may influence Russia is not over yet, analysts from the Prolog investment agency warn. "The Russian stock market may be following tendencies of the US stock market for the near term again after the past month, when Russian traders were ignoring negative news coming from the USA. The recent financial results published by US companies demonstrated that the restoration of corporate profits may last many years and the recovery of the US economy may be W-type and not V-type. Stocks of US companies may again try to drop below their lows observed after September 11 attacks last year. It is clear now that portfolio managers are not planning to start large-scale speculations for a rise."