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. Last Updated: 07/27/2016

RTS Surges for 15th Straight Day

Russia's benchmark RTS stock index surged higher Tuesday for the 15th consecutive session, hitting another post-crisis high on the third trading day of the year.

The dollar-denominated index closed up 4.29 percent to 288.72.

Despite the sizzling performance -- the index is up 27 percent since Dec. 3 -- the RTS is now just half of its all-time high of 571.66, reached in October 1997. But traders said a positive combination of internal and external factors are pushing the market, and few would posit a near-term end to the bull run.

"Everything is on the upside now, including oil prices, the Russian economy, positive trends in the world's largest economies and problems in Argentina," said Troika Dialog trader Alexei Dolgih. "We see fresh money coming into the market, and most of it is Western."

Argentina, once the darling of emerging markets, recently defaulted on its foreign debt and devalued its currency, the peso, forcing many investors to look for new opportunities in other emerging markets, notably Russia.

Several Western funds specializing in Russian securities had a banner year in 2001, and their clientele is growing as a result.

Bill Browder, managing director of Hermitage Capital Management, the largest fund fully devoted to Russian stocks with $400 million under management, said his company's portfolio grew about 80 percent in dollar terms last year.

"In the fourth quarter we started to see a number of new investors coming into the fund, which is a leading indicator for the market as a whole," Browder said Tuesday. "What was particularly heartening was seeing people who were previously negatively disposed towards Russia ready to have another look," he said.

"There were a number of positive fundamental changes in Russia that took place in the last 12 months, but the international investment community has just started to recognize them now," Browder said.

Another RTS-only fund, the U.S. Pilgrim Russia Fund, was the best-performing mutual fund in the world in 2001, soaring 80.3 percent from January through December, according to British-based financial analytical service Morningstar. Pilgrim Russia manages some $57 million worth of stocks, and most of its success was due to oil major Yukos, its most heavily weighted stock and the second-best-performing Russian blue chip in 2001, nearly tripling in dollar terms.

Other top performers included state savings bank Sberbank, which grew 206.9 percent, Sibneft (166.4 percent), Norilsk Nickel (133.2) and Unified Energy Systems (91.8 percent). Other majors like Gazprom and LUKoil, with growth of 78.5 percent and 32.2 percent, respectively, also faired well, but underperformed the market as a whole.

Investment bank Renaissance Capital said Tuesday the market would be even higher now if not for events that were beyond Russia's control.

"Despite the last year's impressive growth, the market could perform even better if not prevented from recovering by a conspiracy of international events that clobbered the market whenever it looked as though a re-rating was underway," the brokerage said in a research note.

That said, Renaissance believes that 2002 will be "the year of Russian equities" and is forecasting the RTS to top 400 by the end of 2002.

"Never in the market's seven-year history has there been the combination of international underpinning and domestic momentum behind the RTS," Renaissance wrote.

Browder agreed: "Even though Russia performed very well in 2001, [the RTS] is nowhere near fully valued, either on a fundamental or technical basis."

Top Blue Chips

Stock Growth in 2001 (%)
Sberbank 206.9
Yukos 192.1
Sibneft 166.4
Nor. Nickel 133.2
UES 91.8
Gazprom 78.5
Mosenergo 70.8
Surgutneftegaz 51.2
Tatneft 49.2
LUKoil 32.2
RTS Index 81.5
Source: RTS