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. Last Updated: 07/27/2016

Markets End 'Mad' Week Up 24 Percent

Russia's financial markets kept their 1997 record intact Friday, surging into record territory for the fifth consecutive trading session as foreign investors poured more money into blue-chip shares.


The dollar-adjusted Moscow Times Index closed at a record 179.94 Friday, posting a spectacular 24.7 percent gain in the new year's first week of trading. Market bellwether Mosenergo was quoted as high as $1.53 Friday, from about $1 a week ago, and oil major Surgutneftegaz also led the charge with a dizzying rise.


Volume on the Russian Trading System surged to $58.2 million, its second record performance of the week. Volume was $55 million Wednesday.


"It was a mad week," said Andrei Ippolitov, head of equity trading at Progress investment company. "Nobody expected it, because in the last three years, the first week of the year was dead. Foreign investors started to buy blue-chips before most of the Russian brokerages were open after the holidays."


Foreign investors again shrugged off bad news about the health of President Boris Yeltsin, hospitalized this week with pneumonia, and continued pouring money into what has become one of the world's hottest emerging markets.


Analysts said big foreign funds, many of which have been sitting on the sidelines when it comes to the Russia, finally have decided the market is mature and stable enough for them to grab more of the action.


"Mainstream foreign fund managers have started to build substantial stakes in Russia for the first time," said Matt Linsey, emerging markets fund manager for the ING bank group in Luxembourg, in remarks reported by Reuters. "Russia has been a very good place to be for my investors in the past year."


Markets also have become more accessible to foreigners as more Russian companies meet U.S. requirements to issue shares as American Depositary Receipts. ADRs allow foreign investors to buy dollar-denominated share packages while avoiding Russia's cumbersome domestic settlement and custody system.


Among the darling stocks of this week's roll was oil company Surgutneftegaz, which announced that trade in its ADRs will start Monday. It finished the week up 43 percent, at $0.615. Trade volume in the company's shares reached nearly $7 million on Friday alone.


"Surgutneftegaz ADRs on Monday will heat up the market, and we'll see a new rise," predicted Andrei Galperin, a trader at Creditanstalt-Grant. The trade volume Friday was almost $7 million


Utility stocks also were hot. The electric company Mosenergo peaked at $1.53 Friday before settling back to close at $1.42 -- still a gain of 40 percent for the week.


Another regional utility, Irkutskenergo, jumped almost 20 percent in the middle of session Friday before falling back to close at 0.181, still up 29.5 percent on the week. Unified Energy Systems closed Friday at $0.126, up 37 percent for the week.


Some analysts voiced concern that a correction might be in the wings if the market overheats, but most predicted that any downturn would be relatively modest.


"Any bad news may turn the market down [but] any correction will be no more than 5 [percent] to 10 percent," said Dmitry Kryukov, a trader at Renaissance Capital.


Prices did slip somewhat late in Friday's trading after the announcement that Yeltsin probably won't be able to return to work before the end of the month.


"It's not a beginning of correction," Galperin said. "I'm just tired after a very hot day, and I think all other traders are, too."


"The decline of inflation and interest rates will prove more significant to the Russian renaissance in 1997 to 1999 than whether Boris Yeltsin retains the presidency," Roger Monson, chief equity strategist at the Daiwa Institute of Research, told Reuters.


But some other analysts were more wary.


"The correction started Friday evening and will continue next week," said Alexander Lobanov of Rinaco Plus.


Local traders said a cooling of interest in blue-chip stocks could send more investors bargain-hunting among second-tier stocks, although there might not be many foreigners among them.


"Here could be a problem with a new foreign investors who believe more in blue-chips," Kryukov said.


Treasury bill prices also continued to firm Friday, and average annualized yields fell to 32.2 percent from 34.2 percent. Lower yields are good news for the cash-strapped government because they mean lower borrowing costs.