RTS World's No. 3 Performing Index

While its volume may be miniscule by international standards, the Russian Trading System outperformed all but two of the world's 38 major stock exchanges over the first three months of the year.

According to a quarterly rating issued Tuesday by U.S.-based financial heavyweight Merrill Lynch, only the China and Taiwan exchanges did better than the RTS in the first quarter of 2001.

The RTS advanced 18.3 percent in the first quarter, compared with a drop of nearly 6 percent for all of 2000.

The good news, however, may not last.

Top Performing Markets in 1st Quarter 2001


2000 Rank

Increase 1st Qtr 2001 (%)

Increase Year 2000 (%)

1. China




2. Taiwan




3. Russia




4. Austria




5. Thailand




6. New Zealand




7. Argentina




8. Korea




9. Mexico




10. Spain




11. Australia




12. South Africa




13. Chile




14. Ireland




15. Philippines




Source: Merrill Lynch

"In three to four months, Russia's market may start having some difficulties," said Walter Murphy, senior international market analyst at Merrill Lynch, in a telephone interview from New York. "Strong markets for one period tend to correct themselves during the next."

Alexei Zabotkin, chief economist at United Financial Group, said Merrill Lynch's rating is deceiving since it looks at Russia's index performance for just the first quarter.

"The gains represent a recovery from last year, when the market closed much lower than it should have," he said. "Going forward, we should not expect Russia to outperform other markets because the fundamentals do not support that."

According to Zabotkin, the fundamentals in Russia Ч including macroeconomic factors, structural market reforms and corporate governance issues Ч don't show any significant improvements that could counteract a world market downturn.

While the rating represents an improvement for Russia, which occupied 12th place in 2000, the RTS is still far behind China's Shanghai index, which Merrill Lynch rated the No. 1 performer.

China's index posted a first quarter rise of 75 percent, retaining the No. 1 position that it has held since last year, and was the only market that remained among the top 10 for 2000 and the first quarter of 2001.

Taiwan's index, which received the second place in Merrill Lynch's rating, posted gains of 22 percent compared with a loss of roughly 44 percent last year.

Finland disappointed its investors with the greatest drop among all major markets. During the first quarter, Hex General index declined 36 percent, pushing Finland down to 38th place from the 21st spot it occupied last year.

The United States, which is in the middle of a bear market, slid from 18th place to 28th.

According to Reuters, a total of 694 U.S.-based companies have issued first-quarter warnings. As a result, the Nasdaq Composite index has shed a quarter of its value while the Dow Jones has dropped 8 percent since Jan. 1. Over the same period, the benchmark Morgan Stanley Composite World Index fell 13.1 percent, which was its fourth weakest quarter in the past 22 years.

However, most market indices are close to a bottom in their declines and investors should expect a reversal of the current trend, Merrill Lynch said in a release Tuesday.

Daniel Thorniley, a senior vice president of the influential Economist Intelligence Unit, said last week he was bullish on Russia, a country underappreciated by foreign investors.

China's market may have offered the greatest returns of any market, but it can hardly compare with Russia when it comes to corporate profits, Thorniley told a group of Western executives at a seminar in Moscow.

Western companies operating in China have an average annual return of 3 percent, while their average return in Russia before the crisis was 5 percent to 45 percent, and most Western companies have returned to the pre-crisis levels, he said.