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. Last Updated: 07/27/2016

Stocks Rise Despite Oil Market Woes




Russia's stocks were pulled in two directions this week as a plunge in world oil prices pushed oil shares down and a lowering of the country's refinancing rate and other good economic news pushed the rest of the market up.


The result was a slight increase in stock prices over the Feb. 20 close, with the Moscow Times Index closing this Friday at 234.46, up just 1.1 percent on the week. Volumes on the Russian Trading System peaked Friday, with $94 million changing hands.


Investors have been holding back due to fears that Russia's economic situation would cause credit rating agencies Moody's and Fitch ICBA to downgrade the country's sovereign credit rating.


But traders said the Central Bank's announcement Friday that it would roll back interest rates from 39 to 36 percent Monday along with Central Bank First Deputy Chairman Sergei Alexashenko's comments that he expects the credit rating agencies to leave Russia's rating unchanged convinced investors that there would be no downgrade.


The government's unveiling of its Eurobond borrowing plans for this year, including a roadshow starting in March, added still another measure of optimism.


Traders said, however, that investors will continue to hang back until the credit agencies make a concrete decision.


"I think in case of a favorable decision we will see a new spike in growth," said Samit Yakovlev, head of equities at United City Bank.


The general increase in share prices was held in check by Russia's oil sector, rocked by a sharp fall in world oil prices that saw the price per barrel plunge from $15.30 to $13.75.


LUKoil's share price dropped 3.25 percent this week and closed at $17.85 on Friday. Surgutneftegaz closed at $0.143, down 6.5 percent on the week.


Most investors caught in the exodus from oil shares sought refuge in the country's utility sector. Unified Energy Systems surged 11.4 percent on the positive economic news to close at $0.2752. Mosenergo also gained 6 percent and closed at $1.305.


Mikhail Koltsov, a trader at MFK-Renaissance, called the divergence of LUKoil and UES stock prices unheard of. Those two shares, which now make up more than half of all trades in Russia, are generally looked to as the market benchmarks, pointing out trends to traders.


"Earlier LUKoil and UES were strongly correlated," Koltsov said. "It is very difficult to work when UES is surging up and LUKoil is going down."


This strange dichotomy in the market will keep prices from heading up much more next week, traders said.


In the fixed income market, yields on benchmark one-year treasury bills were almost unchanged this week, falling from about 31.5 percent Feb. 20 to 31 percent.


A correction at the beginning of the week saw yields go up and caused a 1 percent premium at the nine-month T-bill auction Wednesday.


An expected rise in yields Friday didn't happen due to the refinancing rate announcement. Yields fell from 32 percent Thursday to 31 percent Friday, said Alexander Romashov, a dealer at ING Bank.