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. Last Updated: 07/27/2016

Markets Seem Unfazed By Kremlin Maneuvers

The stock market was lively Thursday amid news of top-level Kremlin intrigue, but it largely dismissed a wave of political firings as share prices edged higher on a general belief that President Boris Yeltsin will hang on to his presidency.


State treasuries, or GKOs, also carried on recent trends, with buyers nudging yields downward to 115 percent from 130 percent at Wednesday's primary auction.


The Moscow Times Index of 50 leading shares rose 2.23 percent in dollar terms to close at 118.32, following a one-day drop Wednesday to 115.74 after a weeklong rally.


Equities brokers seemed unfazed by Yeltsin's sacking of three top members of his inner circle -- First Deputy Prime Minister Oleg Soskovets, the president's chief bodyguard Alexander Korzhakov and the head of the Federal Security Service, Mikhail Barsukov.


"There almost wasn't any change," said Alexei Malyshev, a trader at Gambit Securities. "The news didn't directly affect the market."


Investors continued to pour money into T-bills, meanwhile, sending yields down even further and allowing the government to take in much-needed cash. The firings didn't touch the fixed income market because the news was revealed after the end of the trading session at 1 p.m.


But brokers said the stock market dipped sharply after news Thursday morning that two of Yeltsin's campaign staffers -- one a former aide of ex-first deputy prime minister Anatoly Chubais -- had been detained Wednesday night by Korzhakov and the Federal Security Service.


"In the morning there was a big markdown, maybe 5 percent," said Maxim Perlin, a trader at United Financial Group. But he said the downturn didn't last long and prices stabilized by the time the news of the firings broke.


"After the information about Korzhakov and Barsukov [the market] didn't react very hard on it. Prices were stabilized, volumes were pretty good," he said.


One trader said prices did move up about 3 percent after the announcement -- which came at about 1:45 p.m. -- because brokers dislike Korzhakov and Soskovets. The trader, who declined to be identified, also said the events reflected well on newly appointed security chief Alexander Lebed and helped solidify belief that Yeltsin will beat Communist challenger Gennady Zyuganov in a July 3 election runoff.


"As soon as you show Lebed has power, it improves Yeltsin's position in Lebed's electorate," he said of the former general.


The positive feeling was reflected again in the T-bill market. The average annualized yield on all issues in secondary trading was 115 percent, according to data from Global Fund Management. At Wednesday's weekly primary auction, the yield on six-month paper plummeted to 130.96 percent from 212.76 percent last week.


The Central Bank, acting on behalf of the Finance Ministry, issued fresh tranches of T-bills -- not an unusual step, but one that was still unable to soak up excess demand, much from foreign investors.


The extra issues signal the Finance Ministry's need for cash. For the past month, it has almost broken even on the weekly primary auctions.


"Since the Ministry of Finance is not collecting more money than it needs to redeem previous issue, I think that's why yields are going down so fast," said Denis Smyslov, chief fixed income strategist for Global Fund Management.


So far in June, the ministry has raised just 100 billion rubles (about $20 million) from GKO sales. It needs to take in about 4 trillion to 5 trillion rubles a month to fulfill targets for servicing the budget deficit, Smyslov said.