The market has no previous experience with an analyst at the presidential levle. Therefore, it reacted reservedly to his prognosis.
Photo: Alexey Kudenko
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President Reassuring about Stock Market
// Calls the situation on the stock market a correction
Russian President Vladimir Putin made his premiere as stock market analyst yesterday at a meeting of the government. He characterized the volatility of world capital markets a “correction” and called attention to the Ministry of Economic Development and Trade prognosis of a return by the Russian stock market to its July level by the end of the year. Events on world stock market yesterday showed that the crisis is still with us. The Central Bank of Russia was forced to weaken the ruble a little, selling $4 billion to nonresidents for rubles. They are needed for Russian liquidity beyond the borders of the Russian Federation.
Yesterday, instead of Monday as traditionally, the meeting with the members of the government at the presidential residence in Novo-Ogarevo, Putin played the role of stock market analyst for the first time. After hearing a rather long and ambiguously phrased report by Minister of Economic Development and Trade German Gref on world and Russian stock markets, concluding with a claim by the minister that the RTS will be able to regain its pre-crisis level, the president unexpected added, “For us, it wasn't such a critical fall, but more like a correction with regard to the previous unprecedented growth, so I agree with you; those assessments are absolutely sound.” The president explained that “In the West, there are positive signals as well” and endorsed the assessment of the current situation made by Gref. The minister gave the following prognosis of developments on the stock market: “I think that the temporary fluctuations shouldn't have a significantly long tail.”
Putin asked about the capitalization of the stock market since the summer of last year, mainly in connection with the Rosneft, Vneshtorgbank and Sberbank “people's” IPOs. Although the president has repeatedly shown a basic knowledge of the stock market, the market is receiving its first short-term prognosis and characterization as a correction from him. Representatives of the IMF, some investment banks and the European Central Bank have spoken similarly about the situation. Representatives of the U.S. Federal Reserve Board and the largest investment banks have not.
The RTS index remained practically unmoved by the high-placed prognosis. Trading began on the RTS with the index at 1852.25, and closed at 1820.65, although the fall stopped temporarily at 3:00, after the president spoke. It grew until 4:30, reaching 1826.88. A week ago, the index was at the same 1820.
Events on the financial and currency markets were much more interesting yesterday. They somewhat contradicted the idea that the correction on the stock market was temporary in nature. The Central Bank of Australia (where Putin plans to visit at the beginning of next month) was forced to intervene on the interbank credit market at the level of $4.4 billion, and the European Central Bank and Bank of Japan continued their interventions. The Bank of Japan reached a record level of $7 billion. The U.S. Federal Reserve Board's raising of the discount rate on Friday had very short-term influence. Indexes in the United States grew on Monday, but not after. The DJIA dropped 0.3 percent; Nasdaq 0.28 percent. There was practically no growth in Europe – the LSE grew by 0.12 percent.
At the same time, the Central Bank of Russia joined the world battle for liquidity. It had to weaken the ruble against the currency basket by 6 kopecks and sell nonresidents about $4 billion. “”There was no one to sell besides the Central Bank,” explained head of the conversion and interbank operations department of Zenith Bank Alexander Karpov. “The whole market was buying dollars.” Senior trader for ING Bank Konstantin Kostrub thinks that “Sales of the dollar by the Central Bank will bring stability to the currency market, but dry out the domestic money market.” The Central Bank's balance of operations for absorbing liquidity was 49 billion rubles. The reduced liquidity in Russia so far is not of deficit nature, unlike in the U.S., EU, Japan and Australia.
Dmitry Butrin, Igor Orlov
All the Article in Russian as of Aug. 22, 2007
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