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. Last Updated: 07/27/2016

Steel and Power Lead the Sochi Gold Rush

As crowds in Sochi reveled in the city's Olympic win, traders in Moscow huddled to figure out how to cash in on it, providing a welcome shot in the arm for dozing local markets.

The MICEX and RTS exchanges both gained 4 percent on the week. Now at 1975 index points, its highest close since it failed to hold the 2000-point benchmark on April 17, the RTS is again within a whisker of an all-time high.

Hopes were strong that it would reach it by week's end, as analysts rushed to price in the news for the many companies poised to gain from Sochi. But the 2000 mark again proved more of a barrier then a milestone, and the euphoria that followed the Sochi news faded, with the RTS ending Friday flat.

The first to gain from the revaluations were the companies surest of profiting from Sochi. Steelmaker Evraz (EVR.LN) gained nearly 10 percent in London on its specialization in the beams and girders used in large-scale building projects. Providers of power to the region -- Kubanenergo (KUBE) and TGK-8 (TGKH) -- both saw a double-digit jump Thursday.

But it will take more than steel and electricity to gear up for the Olympics, which Alfa Bank said Friday would require the installation of 700 kilometers of fiber-optic cable, 200 kilometers of motorways and railways, 25,000 new hotel rooms, 11 large sporting venues and a new airport terminal, among other things. So creative analysts looking for points of entry are giving rosy outlooks on firms dealing with everything from zinc to glass and plastic.

Anton Tabakh, chief strategist at UralSib, said Sochi has sparked a long-overdue change in the way people value these kind of sectors.

"For those who were paying attention, it was already clear that cement for example was going to do well. But now it will do fantastically well, and now a lot more people are paying attention," Tabakh said.

Most investors, however, will be likely to wait until contracts are doled out, or the Games are closer at hand, before jumping on a particular stock. For instance, Open Investment (OIVS) and Sistema Hals (HALS) will be among the first in line when the state hands out construction deals, and Southern Telecom will profit when people begin converging on the city and using their phones.

"This won't go away, you will have news flow on this for the next seven years, and it's always going to remind the market of this story," said Alfa Bank strategist Erik de Poy.

But the promised injections of $7.5 billion into Sochi, spread out over the seven years leading up to the Games, seems small compared to the promise of growing valuations and private investment.

In China, the state budget for the 2008 Summer Games is $18 billion, but the construction will cost close to $40 billion. So spending will most likely be adjusted upward, making more business for local firms.

Judging by the experience of other Olympic hosts, local markets have a lot to gain from Sochi, making even a lazy bet on the indexes a pretty good idea. Italy was awarded the 2006 Games in 1999, and its equity market outperformed global markets by 40 percent in the two years that followed. Greece outperformed by more than 150 percent in the 24 months following its successful Olympic bid in 1997.

But the heavily taxed oil and gas sector, which represents more than half of Russian equity, has very little to gain at Sochi.