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. Last Updated: 07/27/2016

Markets Remain Calm After Political Shake-Up

Investors in Russia's stock market virtually ignored the country's political turbulence this week, shrugging off the dismissal of Prime Minister Viktor Chernomyrdin on Monday and barely reacting to the choice of Sergei Kiriyenko to replace Chernomyrdin on Friday.

With the exception of strong volatility Monday that saw a sharp drop and quick recovery in share prices on news that President Boris Yeltsin had dismissed his government, the week has been relatively quiet.

Yeltsin's choice of Kiriyenko on Friday pushed The Moscow Times Index of 50 leading shares up 1.4 percent to close at 255.19, a gain of 0.66 percent on the week. Trading volumes, which reached $155.5 million on the Russian Trading System on Monday, averaged about half that for the rest of the week.

Traders were surprised by investors' cool reaction over the political news and credited it to positive sentiment about the market. "The country has no government but stocks are rising," said Mikhail Koltsov, a trader at MFK-Renaissance. "I don't remember anything like it."

Others agreed. "The market didn't fall on such horrible news as government dismissal which means it is pretty strong," said Andrei Kukk, head trader at Rinaco Plus. "Also the market has not gone high enough to let investors take profits."

Although investors responded favorably to Kiriyenko's nomination and would likely be disappointed were he rejected by the lower house of parliament, the State Duma, the market is reserving judgment until Kiriyenko reveals just who will make up the government, Koltsov said.

Russian oil shares were up this week, pushed by a sharp rise in the price of crude ahead of a meeting of the OPEC oil cartel. However, most of the action was concentrated in LUKoil shares, which gained 2.6 percent on Friday and closed at $18.03, up 3.4 percent on the week. Yukos surged to $2.14, up 16 percent on the week thanks to good corporate news. The volume, however, was pretty low.

Unified Energy Systems closed at $0.3287, up 2.7 percent on Friday and 0.83 percent on the week.

The fixed-income market was more sensitive to Yeltsin's nomination of Kiriyenko. Prices for long-term treasury bills started to rise Friday after news of the choice, according to Alexander Romashov, a dealer at ING Bank. The yield on one-year GKOs fell about 1 percent Friday from 28.3 to 27.2, but were unchanged for a week.