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. Last Updated: 07/27/2016

Kudrin Sees No Threat to Blue Chips

MTOleg Vyugin, Kremlin aide Arkady Dvorkovich and Vardanyan listening to Kudrin at Troika Dialog's conference Tuesday.
Finance Minister Alexei Kudrin on Tuesday appeared to reject President Vladimir Putin's call to consider using government funds to prop up blue chip stocks.

Stocks are doing well and do not need government help, Kudrin said at a conference on the debt market organized by investment bank Troika Dialog.

"I see no threats to our blue chips," Kudrin said. "The government's investment will only boost speculative growth in the markets."

Troika chairman Ruben Vardanyan agreed with Kudrin, saying an influx of cash from the state would "overheat" the stock market.

Since the start of the year, investors have become more wary about the country's oil and gas stocks, with state-run Gazprom losing 18 percent and state oil firm Rosneft shedding 14 percent. Some analysts say an overly heavy tax burden is leading to a slowdown in investment in new fields.

Putin on Monday urged the government to invest in the Russian stock market as well in foreign stocks.

"The government invests in foreign securities," Putin said at a Cabinet meeting. "Why doesn't it invest in ours at all?"

Putin did not name exactly where the money for such investment should come from, but analysts suggested the stabilization fund, which accumulates windfall oil export revenues, as a possible source.

Kudrin told the Cabinet meeting that such government money infusions would rack up inflation and boost market speculation.

Putin then insisted that the government support the market during hard times. It is strange, Putin said, that the stock market, led by energy companies, plummeted and stagnated earlier this year as world oil prices were growing.

The stock market has resumed growth since then and grew by 1 percent, compared with the level before the slump, Economic Development and Trade Minister German Gref told the meeting.

On Tuesday, Kudrin reiterated his position of noninterference. "I see no reason for the government to put money in the financial markets in order to prop up the stocks of state-owned companies," he said.

The slump earlier this year was only temporary, he said. "Our financial market is one of the fastest-growing in the world, and it will continue to grow," he said.

A better way to help energy companies would be reducing their taxes, said Dmitry Loukashov, an oil and gas analyst at Alfa Bank. Oil companies' scarce resources to invest in greenfield development is what drives their stocks down, he said.

"It's an insane situation when the state takes all profits from oil companies, making their stocks fall, and wants to buy these stocks to support them," he said.

In a note to investors Tuesday, MDM Bank took the view that Putin had implied investing part of the stabilization fund, which currently holds $113.7 billion, into domestic securities. Now the Finance Ministry invests the money in foreign currencies and holds it on Central Bank accounts.

The national welfare fund, which will represent a portion of the stabilization fund from next year, could be invested on the stock market, but the share of Russian stocks, if any, should be "very small," said Peter Westin, chief economist at MDM Bank.

"This money has to be shielded from Russia's own risk," he said.

Putin's idea of investing into equity when the market is stagnating poses questions, Westin said. Markets normally stagnate if stocks do not offer high returns and supporting such stocks could generate low or no rewards, he said.