Global Tailwinds Hit Russia's Stocks

Oil and gold prices punched through to new highs last week, a rare bright spot for some speculators in what was otherwise another week of shuddering losses in the United States.

Washington-based Carlyle Group, one of the world's largest private equity groups, saw one of its funds collapse Thursday, overloaded by $22 billion of debt, sparking new fears about what lies around the corner.

Worse followed Friday, as shares of Wall Street bank Bear Stearns plunged 57 percent after JPMorgan and the Federal Reserve Bank of New York offered it a 28-day bailout on news of its worsening liquidity position.

The news prompted a wave of declines in global markets Friday, sending European markets back into negative territory for the week, with the FTSE 100 down 1.2 percent, Frankfurt's DAX down 1 percent and Paris's CAC-40 down 0.6 percent. In New York, the Dow Jones' gains were pared back to 0.5 percent on the week.

The tailwinds just caught the Russian markets before the day's close, leading to a reversal in the day's earlier gains to finish up just 0.25 percent on the RTS, and 0.27 percent on MICEX. Over the week, the RTS and MICEX overall performed well against their global peers, adding 2 percent to 2064.41 points and 2.6 percent to 1651.91 points, respectively.

Commodities barreled along on their upward curve, despite the outlook for a U.S recession and slowing global economic growth. Gold, which has enjoyed a 30 percent jump since November, surged through the $1,000 per ounce barrier for the first time ever, while tight supply and soaring demand pushed oil briefly to $111 per barrel in New York, another record high. And it doesn't look like it's going to stop anytime soon, with Goldman Sachs saying in a research note Friday that the oil price could go as high as $175 per barrel in the next couple of years.

In the short term "$120 looks within reach," said Ronald Smith, head of research at Alfa Bank. "At the same time, 10 days time from now, we could be at $90. These markets are extremely volatile."

Russia's oil companies, which see most of their windfall profits snapped up in tax payments, moved up nevertheless. On MICEX, Rosneft rose by 3 percent and LUKoil by 6.6 percent on the week.

"A big reallocation [of funds] into Russia is in the process," said James Fenkner, who manages $100 million of assets at Red Star Asset Management. "We really didn't see too much of a sell-off. [The markets] have been relatively resilient because of where the oil price is."

"Unless commodities reverse, it would take a lot to knock Russian share prices right now," he added.

Gold, meanwhile, has everything going for it -- in the short term at least -- as investors flee the weakening dollar. A dramatic $200 billion rescue package from the U.S. Federal Reserve, introduced in tandem with other central banks, to save the mortgage industry and head off a recession added to inflationary fears, also sent investors swinging to gold.

High gold and oil prices are, in part, a consequence of a "dollar scare," Fenkner said. "The dollar weakness is going to express itself in very high dollar commodity prices."

Regional telecom firms were among the biggest winners on Russian markets this week, prompted in part by IT and Communications Minister Leonid Reiman's comments Thursday that the long-delayed privatization of Svyazinvest would be back on the cards after the new government takes shape in May.

Sibir Telecom rose 8.1 percent Thursday, while Center Telecom was up 4.5 percent, Northwest Telecom up 4.4 percent and Volga Telecom up 3.7 percent.

Reiman's remarks "focused attention on a sector that has become incredibly undervalued," said Philip Townsend, head of research at Metropol brokerage. "In reality, I don't think there is any chance [the Svyazinvest privatization] could happen this year at all. It could become much more of a talking topic in the second half of the year. "

VimpelCom's Global Depositary Receipts rose 11 percent in New York on Tuesday on the eve of its results, before falling 7 percent the next day after earnings failed to match analysts' expectations.

Uralkali was the surprise loser last week after it failed to win three auctions but fell just 1.8 percent on the week. Silvinit, which teamed up with arms trader Rosoboronexport, and Acron separately beat out Uralkali in two auctions. Silvinit rose 30 percent on the week, while Acron's shine soon lost its gloss to finish down 2.3 percent.

But Russia seemed little more than a sideshow to the global events last week. All eyes will be on the West in the next few days, as investors wait for more reverberations to come.