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. Last Updated: 07/27/2016

Jury Is Still Out Over End to Losing Streak

For the braver souls who hadn't ditched their blue chip stocks, some champagne was called for this weekend.

The five-week losing streak looks like it may be over after the RTS index shot up a combined 6 percent Thursday and Friday, while the MICEX gained nearly 7 percent, making for the most decisive upward jolt since December 2005.

At the beginning of last week, Russian stocks were trading at an 18 percent discount to their emerging markets peer group. The unusual size of this gap made several local banks conclude over the weekend that prices were unjustifiably low, making it time to swoop in on the bargains. Because the recent decline had gone on for so long, investors hesitated for several days before believing the bullish advice. But then they jumped in strong Thursday.

The biggest names led the way. Gazprom (GAZP) had gains of 7.7 percent on Thursday and Friday, while Rosneft (ROSN) shot up 5.8 percent and Unified Energy Systems (EESR) gained 8.6 percent.

Norilsk Nickel (GMKN), the world's largest nickel producer, saw a tremendous rally of 14.6 percent starting midweek -- a rally that looked set to continue after rival Xstrata pulled out of the bidding contest for control of Canadian metals firm LionOre.

The market's recovery looked especially well timed for Sberbank (SBER). On Wednesday, the state's flagship bank saw its stock fall below $3,400 per share, the price it charged during its February public offering. Staying below this level would have caused some real regrets among the investors who had participated in the placement, but the bank came back with two-day gains of more than 8 percent to close the week at $3,670 per share, safely above the placement price for now.

"The jury is still out as to whether this [rally] is really the start of something more substantial, or just a technical rebound," said Erik DePoy, strategist at Alfa Bank. "My guess is that it's just a rebound, but it's really at that razor's edge."

There were signs that investors might be warming back up to the oil and gas sector, which was down 22 percent on the year to date before last week's partial recovery. A Moody's report to be released Monday on the global oil and gas industry upgraded all the Russian names it reviewed. From a list of the world's 16 biggest hydrocarbon firms, Rosneft and Gazprom Neft (SIBN) are now the only ones with a "positive" outlook. Gazprom, LUKoil and TNK-BP were boosted from "negative" to "stable."

The reasoning boiled down to "strong cash flow generation on the back of sustained high oil and gas prices and resilient refining margins," the ratings agency said in a statement.

On Tuesday, Renaissance Capital agreed in principle with Moody's but disagreed in its company picks. The bank said recent fears over growing oil production costs were "significantly exaggerated," and upgraded LUKoil and Tatneft (TATN) to "buy," while downgrading Rosneft to "hold" and keeping a "sell" rating on Gazprom Neft.

"Russian oil companies will continue to have material cost advantages over international peers, both upstream and downstream, for the foreseeable future," the bank said. It sees 18 percent upside for what has been the biggest laggard among Russian industries for five months.

DePoy pointed out that such optimism "bumps up against consensus," as most of the country's banks are still bearish on oil and gas.