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. Last Updated: 07/27/2016

Rate Hike Hits Local Markets




Equities dropped below 200 last week, feeling the chilling effects of an interest-rate hike across the Atlantic, where the U.S. Federal Reserve on Tuesday jacked up the target rate 50 basis points to 6.50 percent, its highest level since 1994.


"This is not a vote against Russia," said James Fenkner, equity strategist with Troika Dialog brokerage. "The market is down on exogenous factors."


The tech-stud Nasdaq index - a proxy of investors' appetites for high-risk assets - was down 3.93 percent to 3,390.40 over the week, sending shock waves through emerging economies.


The RTS Index dropped 13.45 percent to 190.50 on dangerously growing volumes, and the dollar-denominated Moscow Times Index of 50 leading stocks lost 14.53 percent to 147.73.


"I was a bit surprised seeing how fast the market crossed the 200 level and kept falling further," said Alexander Fonarkov, trader with Fleming UCB brokerage. "It could be a pure coincidence but the market was hit hardest when the Cabinet was named."


The State Duma last week appointed Mikhail Kasyanov prime minister. He filled most vacancies with faces well-known to the business community.


National power grid UES made up about half trading volume and lost 23.9 percent to 13.7 cents a share.


Volumes at the Moscow Interbank Currency Exchange, with UES's share higher than on RTS, were twice as high last week.


Mosenergo, having reported a loss of $2 billion under GAAP, trailed UES with a loss of 22.3 percent to 4.7 cents a share.


Higher oil prices helped oil stocks, a traditional safe haven in bear times.


LUKoil shed 11.9 percent to $13.2 and Surgutneftegaz dropped 13.2 percent to 26.7 cents a share.


Brent futures surged last week 3.16 percent to $28.59, providing relief to major oil exporting countries - Russia, Nigeria and Venezuela.


While on a fundamental basis local equities remain a bargain, their short-term prospects are bleak.


"Emerging markets will not see inflows of money before we see the top of rate hikes in the United States," said Troika Dialog's Fenkner.


In a pessimistic scenario, Fenkner said, the RTS Index could dive to 145 and in a base-case scenario it will find support at 185.


Traders said U.S. interest rates could be hiked another 50 basis points as early as in June.