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. Last Updated: 07/27/2016

Yeltsin Illness Fails To Halt Stock Rally

President Boris Yeltsin's hospitalization with pneumonia slowed but did not halt Russia's equities surge Thursday, demonstrating the fledgling market's resistance to bad news about the Russian leader's health.


Despite some selling early in the day, bulls soon returned to the market and pushed the dollar-adjusted Moscow Times Index of 50 leading Russian shares to a new record of 168.09 points by the close, up a half-point on Wednesday's record.


Sales volume in the electronic Russian Trading System, the main market for Russian shares, totaled $39.44 million, down from Wednesday's all-time high of $55 million but still well up on December levels.


"The market has got used to bad news about Yeltsin's health. The big players knew that any fall wouldn't be serious, and they saw it as a buying opportunity," said Andrei Galperin, equities trader with Creditanstalt-Grant.


Many still fear the current bull run will end badly, however, if there is a resumption of the price growth seen earlier this week. The MT index has surged 24.87 points, or 17.4 percent, since Dec. 30.


"The tendency is right: Russian stocks should be growing, but at this rate it is ripening for a piece of bad news which will tip the market over," said James Fenkner, head of research with the CentreInvest brokerage. He said worse tidings on Yeltsin's health could provoke such an upset.


Russian dollar-denominated debt has shown more sensitivity to the Yeltsin health news.


MinFin bonds and Vnesh paper, dollar instruments issued to cover Soviet hard-currency debts, both fell sharply in New York trading after news of the president's hospitalization was released Wednesday evening in Moscow. Vnesh paper fell to about 77 cents on the dollar from 80 cents, though there was a marked recovery Thursday.


"MinFins and Vnesh both reacted in the same way," said Andrei Serebryakov, head of treasury operations at Russia's National Reserve Bank. "People were selling Vnesh at ridiculously low prices in New York. Now we are seeing a recovery."


Serebryakov said, though, that London market makers were nervous about Yeltsin's uncertain health prospects, seeing no obvious candidate to replace him.


"It is a good time to be short for someone who is expecting more bad news on the health front," he said.


Russia's market in three- and six-month treasury bills, or GKOs, shrugged off the news of Yeltsin's hospitalization. Prices rose as yields fell to 34.2 percent, from 35.7 percent at the previous auction, because of a build-up of money on the market.


Lower yields are good news for the government because they reduce its cost of borrowing.


"I foresee levels below 30 percent, though I doubt that they will stay,there for long," said Kostya Demchenko, chief T-bill dealer with National Reserve Bank.


Some specialists express doubt that the Central Bank's push for lower yields is really working.


"People thought yields would drop far when big foreign money came in the fall, but it didn't happen, and I don't think it will happen now," said Yury Zhuravel, senior government securities specialist at Most Bank.


Zhuravel said prices at T-bill auctions have been higher than on the secondary market since the start of the new year, indicating an overall downward trend in prices.


He predicted yields of more than 40 percent soon.