Russia Jumps on Global Market Bandwagon

MTTraders watching stock movements as they man the phones Tuesday at the Troika Dialog investment bank. Russian markets posted hefty gains for the day.
Russian exchanges jumped on the global equity-market bandwagon Tuesday, posting their largest one-day gains in almost a month and outpacing other European indexes in percentage gains.

Both the ruble-denominated MICEX Index and the dollar-denominated RTS Index rallied at the open, encouraged by higher oil prices, Monday's global stock market gains and the news that European and U.S. governments would intensify their crisis-relief packages with the purchase of hundreds of billions of dollars of shares in major banks.

The MICEX closed up 13.3 percent, and the RTS finished with a gain of 9.9 percent, making up for losses on Monday.

Trading on the MICEX was anything but calm, as spikes in the index saw it at one point hit a level 16 percent above Monday's close.

The swift morning upsurge, however, trigged a one-hour suspension of trading on the MICEX, an automatic measure when the index jumps more than 10 percent.

The Federal Service for Financial Markets had declared 10 percent as the new trade-suspension threshold earlier Monday morning, replacing the previous limit of 5 percent, which had only been introduced last week.

The limit for changes in value of individual stocks was also raised, up to 15 percent from its previous 10 percent mark.

While Tuesday's advances were encouraging, many market players were disgruntled by the fiddling with suspension thresholds, which they saw as just the latest example of abrupt, unpredictable changes in the way the markets are regulated.

"They seem to change [the rules] on a whim," said James Beadle, chief investment analyst for Pilgrim Asset Management.

"We investors are not pleased with another one of the market regulators' attempts to adapt their rules to the market," Beadle said. "How can I open a position if I don't know whether or not the market will be open when I need to sell it?"

Beadle was not the only one frustrated.

"Participants want there to be clear, transparent rules that are applied consistently so that everyone, everywhere knows what is going on," said John Heisel, an equity sales trader with Citigroup.

Vladimir Milovidov, head of the Federal Service for Financial Markets, said he was aware that the recent abrupt closings and openings of the exchanges had upset investors, and was looking at alternative ways to deal with volatility worries, Kommersant reported.

Greater regulation transparency is just one factor that will have a direct bearing on whether Russian markets can maintain upward momentum.

"The sustainability of the upward trend is still under question, and it depends on the measures to be implemented this week," said Yaroslav Lissovik, co-head of equity research for Deutsche Bank in Russia.

Lissovik said he hoped that the $86 billion financial rescue package, signed into law Monday by President Dmitry Medvedev, would start to take effect later this week.

The $86 billion is part of a total relief package worth $210 billion, at least $20 billion of which the government has said is earmarked for Russian stock purchases.

"I think we are to expect them to buy shares later this week. If what we are observing in the markets is a turnaround, this would provide all the more the cause for this," Lissovik said. "We need to sustain this upward trend through investment."

Tuesday's jumps in blue chip prices are the kind of results market analysts are hoping for.

Oil and gas companies outperformed the markets, with Gazprom up 16 percent and LUKoil and Rosneft both up 15 percent on the day. All three are traded on the MICEX.

Their shares shot up immediately after trading began, possibly in reaction to a Kommersant report that the government was planning to give $9 billion in state loans to oil companies: $4.2 billion to Rosneft, $1 billion to Gazprom, $2 billion to LUKoil and $1.8 billion to TNK-BP.

Another big winner on Tuesday was Sberbank, which saw its shares climb 15 percent on the MICEX, although they are still down more than 50 percent from their value this summer.

But even large government assistance had not convinced everybody that this was a good time to invest.

"I see so many people who think it's the bottom, but if you are in this business and if you want to invest, you don't have to time the market and capture the bottom, you just have the find the growth," said Denis Gayevsky, managing capital markets director at Bank of Moscow, adding that he did not see much chance of growth in the near future.

"Just look at any graph: The economy is going down, construction is down, disposable income is down, so the regular investors with big money will prefer to wait and see what the market does," Gayevsky said.

He said the markets were moving on the activities of smaller, short-term investors and day traders, attracted by high volatility and risk, but that there were dangers in this approach.

Quoting British economist John Maynard Keynes, Gayevsky said that in this sort of crisis situation, "the market can stay irrational longer than you can stay solvent."