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. Last Updated: 07/27/2016

Analysts Bullish Despite Market Slide

The stock market saw most of this year’s gains erased as the global tech sell-off offset strong national fundamentals but analysts say the bourse could be poised for big gains in 2001.

Optimism for Russian shares abounded at the start of the year with a new president, a pro-Kremlin parliament and soaring prices on key energy exports helping the economy recover at a rate that few at home or abroad had expected.

But hearty underlying fundamentals could not keep the local bourse from plummeting once the implosion of high-flying technology markets began, dragging other markets in their wake.

James Fenkner, equity strategist at Troika Dialog, said that the Russian market now was not the master of its own fate.

"Everything really depends on what happens with the economy in the United States and where oil prices will be. The downdraft has been pretty powerful," he said.

"Unlike this time last year [when President Boris Yeltsin resigned] the market is not suffering problems that can be solved with the appointment of one person or the adoption of one decree," Fenkner said.

NIKoil chief strategist Eric Kraus said the bourse, like other emerging markets, had suffered a huge compression in global risk tolerance that drove deep-pocket foreign investors from trade despite economic progress.

"Unfortunately, we are now seeing a situation where ample good news is simply ignored, while investors and commentators seize on every scrap of bad news to justify further liquidation," Kraus said in his outlook for 2001.

Traders blame the sell-off mostly on global contagion and said that economic improvement was not being priced-in by the market.

At times this year local indices have traded almost point for point in line with the U.S. Nasdaq index, and warnings about the slowing of the U.S. economy have had far more impact on trade here than have figures showing stable growth at home.

But Kraus was cautiously optimistic on prospects for early next year, which he said would ultimately depend on foreign investors who would be watching for signs of global stability.

"Barring a major crisis … we should see more risk-tolerant investors picking through the emerging markets rubble, looking for trapped victims," he said.

Kim Iskyan, an analyst at Renaissance Capital, also saw strong opportunities for growth next year as the paper of many companies was vastly undervalued at current levels.

However, he forecast a very turbulent first quarter.

"Of course it depends on what happens with global markets. I haven’t really seen any signs, though, that would lead me to expect they will settle down from Jan. 1. What we are telling clients is that the potential is there," he said.

Iskyan said one of the major questions troubling investors now was corporate governance.

"The issue was further down the list of investors’ concerns before, but now that a lot of other ones, like getting rid of a sick president, have been taken care of it has moved up. It is as simple as not wanting to get ripped off," Iskyan said.

Corporate governance has been a nagging concern for many traded firms in 2000.

Among them were bellwether Unified Energy Systems, whose restructuring plan has been blasted by some investors who are worried about lack of transparency and assets possibly being sold cheaply.

Sergei Sheikov, head of sales and trading at CentreInvest Securities, said many other issues had to be addressed as well and that market players could not simply count on gains once global markets calmed.

"It would be nice if things worked that way, but the fact is the country hasn’t changed significantly since 1998 [before the financial crisis]," Sheikov said.

"The economy is doing better, but that is thanks to high commodities prices. I don’t think that much has changed to show people this is a safe place to do business and a safe place to invest their money," he said.