Events and Money of the Last Week
Stock Market
Despite the fact that the RTS index again hit its historical high last week at 1108.51 points, it is too early to talk about full-scale growth. Moreover, if we would take a look at the MMVB index, we’ll see that it practically didn’t change compared with the week before last. This is connected with a different structure of basic indexes and hints at the presence of side movement in the overall market. It is possible that market participants already got tired of trading stocks and are getting ready for the holidays – the trade volumes are fairly low and movement on some stocks is happening only with the news.
On Monday Russian stocks mostly were growing up on the background of positive news from world markets: for instance, the Tokyo stock exchange finished trading with a maximum high level for last five years. The most growth was showed by Gasprom shares (2 percent), which are continuing to go up riding the news wave about liberalization of the gas concern market. Also, there was a demand for LUKOIL stocks after the news about a new oil field, discovered and being explored by the company in Iran. Only United Energy Systems of Russia’s shares showed a decline. The reason for the fall was information from the rating agency Standard & Poor’s about changing the forecast for the company and its affiliate Federal Network Company from “stable” to “in development.” According to the agency, the change of the forecast was connected with uncertainty around future reorganization of UES of Russia. Trade days of Tuesday and Wednesday were similar –small volumes, which probably could be explained by non-willingness of market participants to open new positions in the maximum region of the market, as well as to close already existing ones without a decline tendency. Majority of stocks closed these days within plus-minus one percent. The only really growing stocks were privileged shares of Transneft. This was created by the news from Federal Tariff Service about approval for average index tariffs for Transneft service in 2006 on the level of 9.7 percent. Many market participants traditionally see this stock as some state investment with a dividend, for that matter the increase of the tariffs and the company’s profits were accepted with a large degree of optimism.
On Thursday, the market opened quite slowly and started to decline a bit – some shares went down 1.5 percent without any active demand. Standard and Poor’s changed the situation again with unexpected news about raising long-term sovereign credit ratings of Russia. For obligations in foreign currency it changed from BBB- to BBB; for obligations in national currency – from BBB to BBB+. The S & P also increased short-term sovereign ratings of the Russian Federation from A-3 to A-2 and confirmed rating ruAAA on a national scale. All this created short burst of activities in the market, however, there were no aggressive buyers present in the market and the market returned to its normal condition for the last week –slow trades with small volumes. By the evening there were small sales of LUKOIL and Rostelecom shares (-1.79 and -3.04 percent respectively). However, they could not significantly affect the market.
Friday trading was also showing small volumes –change of the stock prices was within a limit of daily volatility. The only stocks that have attracted attention of investors were Gasprom shares, which grew more than 3 percent and set a new historic maximum on the level of 190 rubles per share.
Bond Market
The key factor for the market of Eurobonds was the change in the U.S. Federal Reserve rate on Tuesday. Before the FR decision on the rate the markets almost froze and trading liquidity was minimal. The fact of the FR rate increase in the open market by 25 basic points (up to 4.25 per year) did not surprise the market. However, everyone was waiting to hear comments and hoped to learn about relaxing the financial policy. No surprises came this way – Alan Greenspan
confirmed his further intention for planned increases of the rates. And again, investors were trying to protect themselves and lowered the activities in te corporate and state sectors. As a result, the main market indicator did not change much. The Dow Jones went up by 0.95 percent within a week, NASDAQ –by 0.17 percent. All of this was within volatility margins. The profitability of 10-year US Treasury Bonds went down by 10 basic points, and Russia-30 –by 5.6 basic points. The market of ruble bonds saw record number of large placements – corporate and state. For that reason, the majority of investors concentrated their interest on new bonds. The wave of sales for bonds
of the second tier and last week’s debt issuers was caused by closing time for new placements. The bonds of Stroytransgas-1, URSI-5, YTK, FSK went down in price. The bonds of SOK lowered more than 1.5 percent because of publication by the media about problems of controlling organs to the company, which can cause the break up of SOK with AvtoVAZ.
On Wednesday there was a tradeoff of additional issues of OFZ-AD 46018 with a volume of 8 billion rubles, with average annual profitability 6.94 percent. “South Telecommunication Company” placed for the first day its fourth issue of the company’s bonds with upper margin of stated percentage (10.6 percent annually) for amount of only 4.46 billion rubles with emission at 5 billion. Despite a large supply, this showed investors’ unpreparedness to take a risk of the issuer with a high debt load. On the next day the emission was fully placed. Sevcabel-Finance Company placed its bonds of second issue for amount of 948.2 rubles with emission at 1 billion. The coupon rate was 11.5 percent annual.
On Thursday there was placement of ruble debt of Russian Railroads of series 4, during which the 10 billion rubles worth of bonds were fully place. The demand for bonds exceeded the supply, and as a result the rate of first coupon profitability was set on level 6.59 percent of annual, which is equal to effective profitability of 6.7 percent. Also, Central Bank of Russian Federation placed bonds of Bank of Russia (BDR) for amount of 2.23 billion rubles, with average weighted profitability to purchase on June 15, 2006 of 4.76 annual.
On Friday, there was a debut issue of bonds of Kit-Finance Bank for amount of 2 billion rubles. The rate of first coupon was set at 10.5 percent of annual. The placement of bonds of Oil-gas Company Russneft was also successful with first coupon rate of 9.25 percent. The bonds in amount of 7 billion rubles were fully placed in the market. The coupon rate was set at 7.10 percent annually.
Andrey Khramtsov, Deputy Director of Trust Management of “Vneshtorgbank-Retail Services”
All the Article in Russian as of Dec. 19, 2005
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