Markets Up On News of Yeltsin Win

Businesses and investors Monday applauded President Boris Yeltsin's strong showing in the first round of the election, sending stock prices shooting up amid optimism that the pro-reform incumbent would ride on to a second term.

The Moscow Times dollar index of stocks shot up 11.6 percent to its highest point since October 1994, but dealers said activity was less than overwhelming, and foreign firms in Russia took a "business as usual" approach following the high drama of the election.

"I think people were very bullish about Yeltsin," said Nicholas Jordan, head of capital markets for Deutsche Morgan Grenfell, although he added that the poll results -- showing Yeltsin with a narrow 35-32 lead over Communist rival Gennady Zyuganov -- were about in line with market expectations.

Major Russian enterprises, wary of Communist talk of renationalization and imposing price controls, hailed the outcome of Sunday's ballot. (See stories, Page 12.)

"The mood is very business-like and positive today," said advantage for incumbent Russian President Boris Yeltsin convinced international and Russian business circles that stability would be ensured."

Foreign investors also have been rooting for a second Yeltsin term.

"Our standard position is that we work with various governments around the world, but there's always concern if you change horses in midstream," said Bob Dudley, vice president of business development with Amoco Eurasia Petroleum Company.

By most accounts, the Moscow equities market rose between 7 and 11.6 percent Monday -- the latter figure exceeding a bull run three weeks before the election that started with a 10.9 percent single-day increase in the market.

The Moscow Times dollar index rose a total of 12.04 points to 116.02, while the ruble index rose 27.59 points to an all-time high of 265.99. Russia's sovereign debt markets also firmed, with treasury bills, Vneshekonombank loans and MinFins all buoyed by election results. (See story, Page 12.) But despite the rise in shares, traders said the activity on the markets was sluggish due to high prices set at the start of the day by local brokers looking for a killing in the wake of the election.

"We just stood there all day," said Peter Kizenko, head of equities for ING Barings. "People who were holding stock weren't willing to sell and risk losing those levels ... and buyers were reluctant to buy into the opening gaps."

Some traders, however, predicted another 10 percent in gains ahead of the second-round vote, where most felt a Yeltsin victory was almost assured.

"It might not be as wild [as the previous bull market], but I think it's going to be a bull through the elections," Jordan said. "It's going to be a buy now on speculation, and buy later on reality."

Capital markets' players and foreign businessmen alike expressed surprise at the strong third-place showing by dark horse Alexander Lebed. But where business leaders had mixed reactions as to how they would be viewed by the former general, equities analysts viewed a Yeltsin-Lebed alliance as more fuel for the bull market.

"The message we heard from [Lebed] was a very liberal message with a very forceful delivery," said Dan Lubash, managing director of Merrill Lynch Emerging Markets Europe. He was referring to a meeting between a small group of investors and Lebed that occurred several weeks ago.

"Lebed himself mentioned he is in the pro-reform camp," Lubash said. "He stressed the idea for a little more organized manner of reform."

Alfa Bank President Pyotr Aven told Interfax that Lebed's candidacy "does not cause much wariness," adding that "people are reminded of the Chile example, where the military man's coming to power did not hamper economic development."

As with stock investors, direct investors had widely expected a close race in the first round as well as a run-off between Yeltsin and Zyuganov.

Many are positioned to do business with whichever administration takes power, although "the opinion [in the business community] clearly ... is pro-Yeltsin," said Siemens commercial director Peter Becker.

Should the second round bring a Yeltsin victory, analysts said the resulting influx of capital could completely change the dynamics of Russia's nascent market.

Large institutional investors commanding billions of dollars may well view the former communist bastion as a safer risk. Allocating even minor portions of their huge emerging-market portfolios to Russia would result in massive capital infusions for the country's meager young bourse.

"I think the type of investor you'll see coming into the market in the second half of the year will be quite different from what we've had in the first half of the year," said Peter Halloran, CS First Boston's director of equities for Russia.

-- Erin Arvedlund and Poul Funder Larsen contributed to this report.