Share Prices Drop As Investors Profit

Russian share prices continued their retreat Thursday after posting record highs earlier this week, falling 2.65 percent in dollar terms on the Moscow Times Index and extending a 6.4-point fall the previous day amid profit-taking by foreign investors.


"I would say it's an expected period of consolidation," said Nicholas Jordan, head of capital markets for Deutsche Morgan Grenfell. "The recent two-, three-, four-day surge has been substantial and unabated. These things must occur."


Russian shares have almost doubled in price since the MT Index hit its all-time low just more than two months ago, with much of those gains coming in the last 10 days.


The dollar index of 50 stocks closed at 97.57, while the ruble index shed 5.90 points to finish at 221.84. LUKoil dropped 6.8 percent to $7.92 and Unified Energy Systems fell 1.7 percent to $0.0575. Mosenergo rose 5.6 percent to $0.75.


The foreign fund managers who drive Russia's market are likely waiting for prices to settle back to a realistic level or for their brokers to amass stock in certain companies before buying in bulk, Jordan said. While stocks could continue to fall, he predicted more action ahead.


"I am aware of buyers at slightly lower levels, they just don't want to get out ahead of themselves," he said. "I would not be surprised if there is one more pre-election surge."


Trading in the bond market centered on short-term paper, with long-term debt going mostly untouched, according to James Fenkner, director of research for CentreInvest. "I think you've still got significant risk coming up to the elections," he said.


Weighted-average yields were reported at 167.39 percent, according to Skate agency, up from 159.63 percent Tuesday. There is no trading Wednesdays.


The Russian government faces a difficult task reining in the devastating interest rates -- among the highest in the world -- which it must pay to borrow from commercial banks. Poor tax collection has widened the federal budget, forcing officials to pay the high rates.


Although the high yields offer tremendous opportunities for profit, their long-term effect on the economy and budget are likely to be dramatic.


"The Russian economy cannot sustain those kinds of levels without something giving," Jordan said, adding that by opening the market to foreign investors prices could be lowered. "I think Russia needs to get its yields down to some 35 percent, given its inflation, given what it's already paid this year."