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. Last Updated: 07/27/2016

Stocks Surge on Wave of Positives

Unexpectedly positive economic news on both sides of the Atlantic and the anticipation of stable oil prices brought fresh Western money Monday into Russia's benchmark stock market, which joined a global rally to hit a level last seen nearly four years ago.

"Sooner or later, the stars should align -- so finally they aligned for Russia and the market began to grow," said Andrei Galperin, head of Prospect brokerage.

The Russian Trading System index rose more than 6 percent in intraday trading before coming off slightly to close 4.45 percent higher at 319.05 on turnover of $30.6 million -- double the average volume in February. The ruble-denominated MICEX index finished 3.21 percent higher at 278.72 on turnover of some $170 million, meaning that at present volumes, the two bourses are handling a combined $1 billion per week in transactions.

The RTS, the best-performing benchmark index in the world in 2001, has gained nearly 50 percent in the last six months and 19 percent since the start of the year -- some six times higher than the global emerging-market average, according to Troika Dialog.

Leading the charge was Sibneft, which surged 19.2 percent, Yukos, up 4.6 percent, and non-RTS component Gazprom, which rose 4.2 percent.

"These three stocks, along with UES, were driving the market Monday, but the trading in general was more relaxed than on Friday, when everyone was nearly shocked by the market growth," said Dmitry Kulyashenets, a trader with Renaissance Capital. The RTS jumped 5.06 percent on Friday.

In the last week, major gainers include Sibneft, which is up 43 percent, Norilsk Nickel (31.5 percent), Gazprom (28 percent) and Yukos (27 percent).

"Major trading is done only in five stocks, which account for almost 70 percent of RTS index capitalization," Kulyashenets said.

Those stocks are Unified Energy Systems, Yukos, LUKoil, Surgutneftegas and Norilsk Nickel.

Stephen O'Sullivan, head of research at United Financial Group, said the market was rising on a combination of positive news, including oil prices hovering comfortably above the $20 per barrel mark despite Russia's reluctance to offer the Organization of the Petroleum Exporting Countries any support on requested export cuts.

"The market is not really expecting Russia to expand the export cuts [it promised OPEC] in the next month or so, as the medium-term outlook for oil prices is comfortable enough," O'Sullivan said.

Energy Minister Igor Yusufov told Reuters on Monday that, despite heavy pressure from visiting senior OPEC officials to extend oil export curbs, a decision was unlikely soon.

"It's too premature to give any forecast. We have our commitments until April 1 and we have a whole month ahead of us," Yusufov said.

"Russia still remains very dependent on oil prices and the situation in the United States," Galperin said. "And this is not going to change in the near future."

European shares hit one-month highs after Japanese and U.S. stock indices scaled six-month peaks in the wake of surveys showing stronger-than-expected rebounds in the key manufacturing sectors in the United States and euro zone, Reuters reported. (See story, page 17.)

While investment choices are limited, overall market liquidity is growing, as fresh Western money is entering the market alongside domestic cash.

"Russia is increasingly becoming a normal investment destination as compared with other emerging markets," O'Sullivan said. "We see people coming and buying who have not done Russia for a while. And those who already own Russia are broadening their exposure."

Analysts said that spring has traditionally been a good season for Russian equities and -- provided no unexpected bad news appears -- the rally is likely to continue. In the short-term, Russia's relationship with OPEC and the strength of the U.S. markets will be key indicators, as well as signs of further reforms at Russia's largest company, Gazprom.

"Assuming that OPEC does not raise any objections to Russia's non-adherence to its promised cutbacks in the past or moving into the second quarter, then we would expect the RTS to continue its drive into new territory," Renaissance said in its morning monitor Monday.

According to Troika Dialog, the RTS has a short-term target of 325-330, while 350 will remain a probable resistance level in the medium term. UFG and Prospect expect the RTS to reach 350-390 by the end of the year, while Renaissance reiterates its forecast of 400.

The RTS hit an all-time high of 571 in October 1997.