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. Last Updated: 07/27/2016

Russian Poll Casts Pall Over East Europe

PRAGUE -- More than six years after the Soviet empire collapsed, Moscow still casts a long shadow over its former central European satellites -- at least as far as foreign stock investors are concerned.

Brokers in Prague, Warsaw and Budapest, some of them sitting 1,500 kilometers from Russia proper, complain that worries over this weekend's presidential elections are bad for their business.

Prices have picked up in recent days as confidence grows that President Boris Yeltsin can beat his Communist challenger, Gennady Zyuganov -- if not in Sunday's first round, then in the second round in July.

But turnover has been limited as investors in London and farther afield have held back, apparently lumping the former East Bloc states with the former Soviet Union despite the huge political, social and economic differences between them.

"It seems like the clients in London are backing off a little bit because of Russia," said Lubomir Vystavel of ING Barings Capital Markets in Prague.

"Foreign investors are now waiting to see how Yeltsin will do," said Balazs Szabo of the firm Eastbrokers in Budapest.

Grouping Poland, Hungary and the Czech Republic with Russia does not necessarily make sense.

Since the 1989 fall of communism, the central Europeans have radically redirected their economies away from the old eastern trading bloc, COMECON, to business with the West.

Russian oil is still a vital commodity, but the Czech Republic, for instance, has just opened a pipeline to Germany to cut its exposure to unreliable supplies from the East.

Former communists have returned to power in Poland and Hungary, but few investors doubt their fundamental commitment to free-market democracy -- in stark contrast to Zyuganov's Russian brand of communism.

And while the region has had its ups and downs since 1989, few central Europeans have suffered the acute hardship that Russians have had to endure.

But stereotypes are sometimes hard to shake off.

In Poland, the only former satellite that borders Russian territory, dealers say share market volume has slipped because of the elections, although the WIG index has risen.

"The successes of the last few days on the Warsaw bourse were likely to have been caused by expectations that the danger of a spectacular defeat of the reforms in Russia is decreasing," said Tomasz Berent, of IB Austria Securities.

"Yeltsin is leading in the polls, so maybe there won't be any catastrophe," he said.

Some recent opinion polls have given Yeltsin a commanding lead over Zyuganov, but analysts say they can be very unreliable, and many voters say they remain undecided.

On Wednesday, the WIG index fell 58.4 points, or 0.4 percent, to 13,082.5, the index's first fall for the last eight sessions.

Budapest presents a similar picture. The market has soared despite lower volumes due to foreign uncertainty over Russia.

"The Russian elections have substantial influence on the region's investment strategy, and now Yeltsin seems to be in good position," said Gabor Borda of Concorde Securities.

On Wednesday, the BUX index closed at 3,101.20 points, up 46.59.

Czech dealers also have to contend with some home-grown uncertainty after the pro-business coalition narrowly failed to keep its parliamentary majority in elections 10 days ago.

The Prague Stock Exchange's PX50 index slipped sharply after the indecisive polls and is still below pre-election levels despite recouping some of its initial losses.

But analysts still see Russia's poll as more significant.

"The next moves will be defined by the outcome of the Russian elections," said Pavel Sobisek of Zivnostenska Banka.

Activity on the Czech stock market was somewhat muted on Wednesday with turnover staying just below one billion Czech crowns ($35.83 million). The PX50 index rose 1.1 points to 547.5.