. Last Updated: 07/27/2016

Reform Worries Rattle Market

The market this week took presidential assurances that Russia is committed to reform with a large grain of salt, with investors dumping shares in response to the appointment of industrialist Vladimir Kadannikov as deputy prime minister in charge of economic policy. Brokers and analysts said the downward trend is likely to continue indefinitely.

Decliners radically outpaced advancers by 38 to six on The Moscow Times Index of 50 leading stocks. The ruble-based index dropped by 4 percent to close Friday at 132.31. In dollar terms, the market lost a bit more, falling by 4.8 percent to close at 61.68.

The market started the week with jitters after the resignation last week of the government's chief economic reformist Anatoly Chubais, analysts said, and plunged about 7 to 8 percent by mid-week. Stocks had partially recovered by Friday, but investors remained wary.

The announcement Friday that the Duma will set up a commission next week to review the results of privatization sent shivers down the spines of many analysts and undermined assurances by Prime Minister Viktor Chernomyrdin and President Boris Yeltsin that Russia will stick to a steady reform course.

"For me, the final straw is this week," said Peter Kizenko, head of trading at Alliance Menatep. "Some people go to Gamblers Anonymous. Some people go to Alcoholics Anonymous. I went to Russian Stocks Anonymous. I just can't take it anymore."

Kizenko said he unloaded his personal portfolio this week in response to the distinctly anti-reform swing government policymakers seem bent on taking. Other brokers had followed suit, he said.

The appointment of Kadannikov, chairman of struggling auto manufacturer AvtoVAZ, to head the government's economic policy team, came as a double blow.

"A lot of investors, including me, have had blinkers on all the time, thinking, 'Everything will be fine. Everything will be fine.' But [the government] is just not getting it," said Kizenko.

Other brokers were more resigned to the Kadannikov appointment, saying that Chernomyrdin, now seen as a committed reformer, also had been thought of as a subsidy-friendly Soviet technocrat before his appointment as prime minister.

"The news in itself we consider as neutral unless there's a significant shift in economic policy," said Peter Maschenko, a trader at CS First Boston.

Kadannikov's appointment, and that of Alexander Kazakov to head the State Property Committee, somewhat reassured the market, always edgy over vacancies in key economic posts, Maschenko said. Brokers, however, are withholding judgment to see how the two appointees actually perform on the job, he said.

Aviastar led stocks that suffered from the week's economic uncertainties, tumbling 43.75 percent to close at a mere 23 cents. Sayansk Aluminum lost 20 percent, to $12, and oil concern Purneftegaz dropped 12.73 percent to finish at $1.65.

Reports that talks over a $9 billion loan from the International Monetary Fund had stalled, potentially jeopardizing the government's anti-inflationary deficit financing scheme, added downward pressure on stocks, said analysts.

"The general reaction was 'bad news,'" said Anton Lobanov, an analyst at Skate Press.

Under pessimistic momentum, the market is unlikely to recover before the presidential elections, analysts said.

"The market won't go back to the levels it had at the beginning of the year," said Andrei Kuk, senior trader at Rinaco-Plus. "The market's growth has ceased until Jan. 31, and after February everything will depend on the Duma [privatization commission]. If it grows at all, it won't very readily."

In keeping with traders' gloomy forecasts, market gainers were lackluster. Sakhalinmorneftegas posted a 13.51 percent increase to $1.05, Novolipetsk Metal rose 2.86 percent to $36, and Condpetroleum gained 1.18 percent to $2.15.