. Last Updated: 07/27/2016

Rostelecom Surge Stuns the Markets

Long-distance telephone monopoly Rostelecom rocketed 20 percent Friday as investors in search of liquidity threw their devaluing dollars at the stock.

Rostelecom rose so quickly that trading was suspended for an hour in the morning on both major bourses -- the dollar-denominated RTS and the ruble-denominated MICEX. But the stock took off again when trading resumed and had to be stopped for the rest of the day on both exchanges at around 3 p.m. -- the first time a Russian stock was not allowed to resume trading.

Rostelecom shares were up 20.4 percent and 15.5 percent on the MICEX and the RTS, respectively, when trading was halted for the day.

Market rules require trading to be halted if a company's stock jumps more than 10 percent from its opening price and again if it rises past 15 percent.

Following the second suspension, trading can only resume if the Federal Securities Commission, the stock market watchdog, gives the go-ahead.

Traders said Rostelecom was benefiting from market rumors, the dollar falling against the ruble and the euro, and a short supply of liquid Russian companies.

The FSC said it would investigate the anomalic growth and that Rostelecom shares could trade again from Monday pending its decision, Interfax reported. Although the commission tried to avoid using the term "price manipulation," it said it would investigate the possibility that it played a role.

"We will investigate the event from all sides," Sergei Pantileyev, an FSC department head, told Interfax.

News agencies carried market rumors that Yukos chief Mikhail Khodorkovsky, dubbed Russia's richest man by Forbes magazine, was looking to buy international financier George Soros' 25 percent stake in Svyazinvest, Rostelecom's parent company, and that Svyazinvest was looking to sell a 38 percent stake in Rostelecom to a third party.

So strong were the rumors that Menatep Group, which controls Yukos, issued a statement denying it had plans to buy into Rostelecom either directly or through subsidiaries, Prime-Tass reported.

Yet another report said Rostelecom and Svyazinvest may even merge into a single stock, but both companies denied it.

Analysts and traders said the growth in the stock fueled the rumors, not vice versa.

They said the growth was well above expectations for the stock but not surprising given the recent wave of spikes in the prices of such stocks as Unified Energy Systems, which jumped 13 percent Wednesday, and Surgutneftegaz, which soared as much as 30 percent in one day during a record rally last month.

Traders pointed to a lack of liquidity in the market as a reason for the increased investor activity. In other words, more money chasing fewer stocks.

"If you see something move with that kind of force and it is not [because of] fundamentals, then it means high liquidity is chasing a diminishing asset base," said Sam Barden, head international trading and sales at investment bank Trust. "It means 20 people are chasing five apples.

"If there's nothing real behind it, it will come back [down]," he added.

Meanwhile, Gazprom looks set to be the next focus of investors, as the company's American Depositary Receipts jumped more than 11 percent in London on news of higher profits and lower costs in the first quarter. Local Gazprom shares rose 8 percent to an even $1.

Despite the big gainers, however, the benchmark RTS index gained less than 1 percent Friday to close at 454.