Markets Post Gains After Surprise Opening

Trading on Moscow's stock exchanges resumed unexpectedly Thursday after the country's market regulator went back on a decision from a day earlier to keep them closed until Friday, triggering confusion and complaints on the part of some investors.

The decision to resume trading was made public just 45 minutes before the exchanges actually opened, without any explanation for the move.

"They may have reopened the markets to catch the effect of the interest rate cuts announced in Asia today," said Ronald Smith, chief strategist and head of research at Alfa Bank. "It appears they've been trying to open the markets when things are good and close them down when things are bad, which adds to the uncertainty."

The move seemed to pay off, with the RTS gaining about 7 percent and the MICEX Index about 10 percent in the first half-hour of trading.

New regulations passed by the Federal Service for Financial Markets stipulate that fluctuations of more than 5 percent in an index must trigger a halt in trading of one hour and rises or falls of more than 10 percent will trigger a closing for the rest of the day, or until further instructions from the service.

So less than 24 hours after the MICEX was closed after falling by 14.4 percent Wednesday, regulators froze trading again after it gained 16 percent in less than two hours. Trading was resumed later, and the MICEX ultimately closed up 9.8 percent from Wednesday.

Trading on the RTS was also halted for about an hour in the early afternoon, with the RTS Index ultimately finishing up 10.9 percent. Blue chips were big gainers, with LUKoil adding 27.6 percent, Gazprom 14.7 percent and Sberbank finishing up 9.7 percent from Wednesday.

The gains came at the end of a trying week for the country's markets, as both recorded their largest one-day drops in history.

Part of the rebound may have been generated by a sense that Russian assets had been too severely undervalued. The heavily energy-dependent economy has been hurt by a 42 percent drop in the price of Urals blend crude -- from $141 per barrel in July to $82 per barrel at present -- while the RTS Index has tumbled more rapidly, by about 60 percent, Bloomberg reported.

"The accelerated falls in the Russian markets over the last few days are primarily for technical reasons," said Paolo Zaniboni, head of research at Troika Dialog. "The fact that the correction was so deep is the result of forced margin selling and a lack of liquidity but not a fundamental Russia problem."

Zaniboni said Russia was being affected by a global lack of available capital but that it is well-positioned for a rebound based on its fundamentals.

At current trading levels, Russian stocks are valued at 30 percent to 50 percent discounts compared with their global peers, as the market may have already priced in oil at a worst-case scenario of $50-$60 per barrel, a report released Thursday by Troika Dialog said.

As investors have withdrawn over $70 billion in recent months from Russian markets, according to BNP Paribas, because of a global liquidity squeeze, falling world markets and negative sentiment following Russia's war with Georgia, there has been increasing downward pressure on the ruble and, as a result, on the foreign reserves.

"We are confident that we're in a stable position," said Arkady Dvorkovich, senior economic aide to President Dmitry Medvedev, Bloomberg reported. "The reserves are huge -- the reserves are above $500 billion -- and we believe that any figure above $100 billion is good for Russia today."

All the same, the reserves fell by almost $17 billion last week, as the Central Bank intervened to support the ruble. A price of $60 or higher for Russian oil would keep the federal budget out of deficit, Dvorkovich said. He said the biggest risk at present is a substantial economic slowdown in China, which would send oil prices further down.