Medvedev on the Market
Russian President Dmitry Medvedev has instructed the government and Central Bank of Russia to take measures to support the Russian stock market, which continues to fall steadily. Officials are certain that intervention from the national prosperity fund and pension funds can support the stock market and turn Moscow in to an international financial center. Investors did not trust the authorities. Yesterday, the MICEX and RTS indexes reached lows unseen since June 2006, dropping 3.7 and 2.3 percent to 1298 and 1073 points, respectively.
Russian authorities tried again today to support the stock market as investors leave it en masse. Since the beginning of the year, the RTS and MICEX indexes have fallen 43 percent, 11.6 and 13 percent, respectively, in the last week. Russian President Dmitry Medvedev stated at a meeting with Federal Financial Markets Service head Vladimir Milovidov on Wednesday that the reason for the fall in quotations for Russian companies “is to be found beyond the competence of our financial authorities and is not connected with our economic causes.”
Yesterday, at a meeting devoted to the creation of an international financial center in Moscow, Medvedev gave instructions to right the situation on the stock market. “The government and the Central Bank should take all measures necessary for the influx of additional funds onto the financial market,” he said. Besides the ministers concerned with the economy, Central Bank head Sergey Ignatyev, Sberbank president German Gref, VTB head Andrey Kostin, RTS head Roman Goryunov and MICEX head Alexander Potemkin were assigned to come up with proposals promptly to make Moscow a world financial center. Among the suggestions will be fighting insider trading and price manipulation and creating a unified infrastructure for the financial market.
The president stressed again that he considers the situation on the stock market temporary. “It does not reflect the objective state of the economy. The Russian stock market remains promising for investment and serious investors understand that,” he said. Deputy Prime Minister and Finance Minister Andrey Kudrin had suggestions for stabilizing the stock market. He said that a number of proposals are being considered. “Among them are the placement of pension money and national prosperity fund money in securities and deposits,” he said.
More than 80 percent of all pension savings are managed by the Development Bank (VEB) now and it can invest them in a limited number of low-yield instruments, such as government bonds and mortgage securities. Experts say that is practically impossible, however. More than 345 billion rubles in pension funds are now invested in bonds, and enormous losses would result from moving them onto the stock market. Quotations on government bonds have fallen more than 12 percent since the beginning of the year.
Authorities’ certainty in the promise of the Russian stock market and the measures proposed to prop it up is only part of the support for the market indexes. The information that LUKOIL executives bought 3 billion rubles worth of company stock had a big effect as well.
The Finance Ministry’s proposals contradict Russia’s long-stated intentions to lay aside profit and not spend funds received from advantageous trading conditions, international rating agency Standrad & Poor’s noted in a statement yesterday. The agency stated that the use of those funds to support the value of assets on the financial market would have a negative effect on Russia’s sovereign rating.
A new wave of sales of Russian assets began in the second half of the day after investors saw data on the American balance of trade and July unemployment. The data were worse than analysts expected. Renaissance Capital analyst Ovanes Oganesyan stated that the trade balance indicates a genuine recession in that country. Strong pressure on quotations came after Lehman Brothers bank stock lost 39.7 percent and Washington Mutual, the largest U.S. savings bank, lost 19 percent.
The problems of the American banks were felt on stock markets around the world, including in Russia. The MICEX and RTS index fell yesterday to their lowest points since June 2006. Rosneft lost 5.35 percent, Gazprom lost 4.38 percent. VTB stock reached an all-time low at less than 5 kopecks, 63.8 percent lower than at the time of its IPO (13.6 kopecks). Sberbank stock fell 8.4 percent, reaching 44.50 rubles, exactly half its price at spring 2007 SPO.
Alexander Mazunin, Igor Orlov, Seda Egikyan
All the Article in Russian as of Sep. 12, 2008
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