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. Last Updated: 07/27/2016

RTS Index Breaches 1,500 Mark

The RTS Index of the country's top 50 companies hit a new record on Sunday, bursting through the 1,500-point level for the first time as foreign funds continue to pour money into Russia.

The country's leading equity benchmark has risen by more than 33 percent since the start of this year, after surging by 82 percent in 2005.

"We shouldn't get much higher than this during the year. The market just cannot support that," said Maxim Gulevich, a trader with investment bank UBS.

The RTS Index closed up by 3.7 percent at 1,516 points, led by power monopoly Unified Energy Systems, which gained 7.8 percent in Sunday's session.

Oil majors LUKoil and Surgutneftegaz were also among the gainers, driven by Friday's rise in global oil prices.

Russian markets were closed Thursday and Friday due to Defenders of the Fatherland Day.

While analysts agree the surge in the Russian market in the last 12 months has left most stocks overvalued, they say the market continues to be driven by interest from overseas.

The week ending Feb. 22 saw the biggest inflow of foreign fund money into Russia and the CIS since the start of this year, once again indicating "that Russia continues to be a favored destination for international portfolio investors," Alfa Bank said in a research note on Sunday.

The surge in investor interest has also led to the development of new financial products, including mutual funds, that are linked to the RTS Index.

One such mutual fund operated by brokerage CIT Finance has attracted $143 million since the end of January, when it was set up. The value of the fund has grown by 7 percent in that period, Vladimir Tsuprov, head of the company's fund management arm, said Sunday.

"It's evidence that the market is maturing, and clearly there is a need for new financial products based on the RTS Index. We are also well on course to develop such products," said Yury Morozov, director of Standard & Poor's Index Services in Moscow.

In the short term, the RTS Index is likely to consolidate around the 1,500 mark, UBS's Gulevich said. In the mid- to long term, however, brokerages say a correction of the RTS Index is imminent.

The Russian market has become flooded with amateur, speculative investors -- and experience shows this often leads to a tumble in share prices, said Vsevolod Malev, head of trading and sales at CIT Finance.

CIT's Tsuprov warned the Index could lose up to 15 percent before the end of 2006.

The extent of the losses could be tempered by the inclusion of Gazprom and MTS in the RTS Index on March 15, according to a report published Sunday by analytical agency Derivative Export, with both stocks expected to perform strongly this year.

Their inclusion will limit the fall to 1,434 points by the end of 2006, according to the average forecasts from 16 Moscow-based investment banks and brokerages collated by Derivative Export.

Gazprom and MTS will respectively have weightings of 15 percent and 5.7 percent on the index, based on their current share performance, Sergei Golovanyov, the head of RTS's information and analytical department, said Sunday.