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. Last Updated: 07/27/2016

MARKET WRAP: Shares End Week Up 10% As Western Investors Buy




The stock market leapt upward on aggressive buying this week and traders said Friday that a pre-election rally could be on the cards.


But a lack of fundamental changes makes equities vulnerable to any adverse change in sentiment, they said.


The dollar-denominated Moscow Times Index of the 50 most traded stocks ended the week up 10 percent at 85.10, while the RTS index passed the 100 mark to 111.56, a gain of 11.75 percent.


After seeing big leaps during the week, the market was quiet Friday and the MT Index inched down 0.71 percent on turnover of $12.08 million.


Traders said the rebound started on Western buying at the end of last week, but the biggest gains began Monday while Russian participants were absent from work on a public holiday.


This week's rally came on the heels of a global stock market recovery and growing oil prices, they said.


"Russia is still included in the stock indices, so fund managers have to buy local stocks so as not to fall in the underperformer's category," said Dmitry Kulyashenets, a trader with Renaissance Capital.


Oil prices touched a 34-month high of $24.81 per barrel this week. Global emerging markets are benefiting from a change in sentiment and have recorded heavy gains over the past weeks.


"There is a multiplier effect," said Dmitry Starenko, senior equity trader with Troika Dialog. "Growth in the oil sector drags the rest of the economy up."


Russia's Eurobonds have risen sharply in past weeks and their yields dropped into the low 20s. Prices have surged more than 20 percent since mid-October.


Following the change in Eurobond yields, which are seen as a measure of Russian sovereign risk, the stock market recorded heavy gains this week.


Trading was reduced to a slew of blue chips and companies with a large share of dollar revenues - oil majors and Norilsk Nickel.


Bellwether companies LUKoil and Surgutneftegaz ended the week up 7.8 percent and 11.1 percent, receptively. Unified Energy Systems surged 17 percent to $0.069.


Starenko said this week's gains could forestall a long-term rally in which the market participants would gamble on all kind of political news.


But traders were not overly optimistic that the stock market would play a role in Russia's economic recovery anytime soon.


"Unlike in the developed markets where capital controls are lifted, the Russian market is just a reflection of the situation in the rest of the economy," said Starenko.


It therefore does not help attract capital in the manufacturing sector and cannot be treated as a leading economic indicator, he added.