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. Last Updated: 07/27/2016

Stocks, Bonds Settle After Duma Vote

Stocks recovered from a weak open on Monday and followed bond and currency markets up as investors hoped a pro-Kremlin party's landslide win in State Duma elections would hasten reforms.

The clear victory of the United Russia party, whose main slogan was "Together with the president," prompted a short-lived sell-off by local traders after liberal parties were forced out.

But blue-chip shares settled down as market operators took the view that the huge and widely-expected win for President Vladimir Putin's allies would remove any remaining parliamentary opposition to his reform program.

"[The market] opened down 2 percent on local traders who wanted to sell and short the market because of the defeat of [liberal parties] SPS and Yabloko, but a greater number of investors realized there is nothing bad about that," the head trader at a Russian-dedicated fund said.

Russia's stock market has risen nearly 300 percent since Putin was elected president in March 2000.

"In the last years, the general re-rating of the Russian market was due to [Putin's] actions, bringing political stability to the country. As of now there is nothing to suggest there will be any dramatic or pronounced shift in policy," the trader added.

The RTS stock index closed up 1 percent to 539. Among blue chip stocks, the only loser was state utility Unified Energy Systems, headed by SPS co-leader Anatoly Chubais, whose party was one of the liberal groups to lose its seats in parliament. UES closed down nearly 2 percent to 28.2 cents on the RTS.

Russia's benchmark 2030 bond rose to 95.50 percent of face value and the ruble strengthened to 29.54 against the dollar, its highest in more than two years.

Analysts said the poll result virtually eliminated parliamentary constraint on the executive and left investors, unnerved by the arrest of oil magnate Mikhail Khodorkovsky of Yukos, fully dependent on Putin's goodwill.

The president's policies, including tax cuts, asset sales and allowing the sale of some land, have helped to double wages and boost economic grow to more than 6.5 percent a year since Putin succeeded Boris Yeltsin at the end of 1999. Putin hasn't yet said if he will run in March presidential elections.

The outcome "is positive for the direction of economic reforms," said Per Brilioth, chief executive of Stockholm-based Vostok Nafta Investments, which manages $430 million in Russian assets. "Putin easily will get this parliament to approve his reformist drive. He was very committed to this economic transformation in the past.''

"A little bit of political risk has come out of the market, which on its own lifts it," said Sam Barden, head of equity sales and trading at Trust investment bank.

Some analysts, however, said that the dominance of Putin allies -- who could form a constitutional majority in the chamber -- could frighten off some who were looking for more diversity.

"Those foreign investors who have been forming their views about Russia based on short trips to the booming centre of Moscow may be in for a disappointment this morning," Moscow's Aton brokerage wrote in a research note.

"[Sunday's] election shows what the Russian people actually think: they are stridently nationalist, want wealth redistributed and have little interest in liberal or democratic values."

Steven Dashevsky, head of research at Aton said that big businesses related to oligarchs will see taxes increased and property rights challenged.

"There are safe havens, either companies with clearly pro-government positions, such as LUKoil and Surgutneftegaz, or state-controlled companies such as Gazprom," Dashevsky said.