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. Last Updated: 07/27/2016

Market Recovers as Crisis Ebbs




Russian markets ended the week with renewed optimism as investors lapped up shares Tuesday and Wednesday.


Yields on government securities settled at 48 percent after hitting a high of 85 percent earlier in the week.


In a greater sign that the markets had returned to near normal, the Central Bank late Thursday slashed interest rates to 60 percent after being forced to hike it up to 150 percent last week to cap soaring yields.


Shares were almost untouched Friday with the Moscow Times Index of 50 shares closing Friday at 163.22, down just 0.78 percent from Thursday's close, but up 15.45 percent from last week.


Friday's volumes on the equities market were low at $20 million.


While last week's paralyzing economic crisis seems to have eased for now, analysts said investors were still waiting to hear some positive news from the government.


"I think we can start saying the crisis is over," said trader Samit Yakovlev of United City Bank. "More and more people are getting interested in buying shares, and if everything remains OK, we will see another bullish week in the GKO market."


GKO rates for the day were up slightly by 0.72 percent from Thursday's close, but analysts called this a "normal correction" after Thursday's strong rally pushed rates up 25 percent.


Short-term bond rates rose 0.5 percent to 33 percent Friday as long-term bond investors took profits.


"There was very good profit for those who bought last week -- more than 1,000 percent," said Anders Mattson, a trader at Ryman and Gor. "Some people who sold long-term today bought short-term dollars on the interbank market."


The government's successful placement of $1.2 billion in Eurobonds with reports of additional offerings in the coming week cheered the market. The better-than-expected results at Wednesday's GKO auction also encouraged investors.


With the appearance of short-term cash after profit-taking and of increased confidence in the market, next week could see further improvement, brokers said.


Investors are also likely to keep a close watch on the sale of Rosneft oil company and await the announcement of the results of the auction Wednesday.


The government has revised the price for Rosneft to $1.6 billion from the earlier $2.1 billion after it failed to attract any bidders.


Investors are still waiting until the government can demonstrate it can manage its finances, analysts said Friday.


"There are still severe doubts over Russia's ability to manage finances," said Tom Adshead, head of research at United Financial Group in Moscow. "This is what triggered the crisis, and that is why Yeltsin fired the government. The hope is that the new government is working hard on tax collection. If they don't, we'll be back here [after] six months."


Blue chips were the most battered during the market tumble and climb, with electricity monopolist Unified Energy Systems replacing LUKoil holding company as the most traded, thanks to the price slump in the oil sector.


UES closed at $0.2010, up 0.5 percent from Thursday and 14.20 percent from a week ago. It is still down 11.65 percent from two weeks ago, before the crisis.


LUKoil closed at $11.05, up 0.45 percent from Thursday but still down 2.64 percent from its pre-crisis level.


GAZ automobile factory was cited as one of few companies to weather the crisis well. Shares closed at $114.75, up 3.38 percent from yesterday and 13.61 percent from last week. Over two weeks, though, GAZ shares lost just 1.67 percent.


Russia's poor tax collection and weak world oil prices have dented the government's budget. But investors are heartened with the ability of the new government, especially in new Prime Minister Sergei Kiriyenko, in heading off a massive economic disaster.


Kiriyenko's and the Central Bank's staunch policy of defending the ruble, preferring instead to prop up the refinancing rates to 150 percent from 50 percent, was seen by analysts as a sign Russia was acting according to a concrete financial policy.