Mikhail Semenov,

Managing Director of BrokerCreditService Management Company

Bond market

The dynamics of quotes on the underlying asset market last week were determined by the release of macroeconomic data. Thus, on Monday, the yield on US Treasury bonds continued to rise after the publication of the US business activity index in September - despite high oil prices, the indicator unexpectedly increased from 53.6 points in August to 59.4 points. Investors took this as an argument in favor of maintaining the US Federal Reserve's policy of raising interest rates.

On Tuesday, the situation began to soften somewhat amid a pullback in oil prices, but investors were cooled by statements from the presidents of several branches of the Federal Reserve regarding high inflationary pressure and the need for further interest rate increases. The debt market really took heart on Wednesday, when data came out on the fall in the US services business activity index in September, which significantly exceeded the forecast and became the highest in the last 16 months. Against this background, investors began to hope that the end of the series of Fed rate hikes is approaching.

The overall mood in the Eurobond market for emerging economies was negative. Russian Eurobonds felt somewhat more confident than the others. On Tuesday, the indicative issue of Russia-30 even managed to close in positive territory. It seems that Russian Eurobonds continue to be supported by expectations of early repayment of Russia's debt to the Paris Club of creditors and an increase in the country's credit rating by Moody's. However, for many investors, the reason for selling Russian securities is the fall in oil prices, which led to a decrease in their value on Wednesday, when the price of Russia-30 fell by 0.24% to 114.123% of the nominal value.

After an unusually successful end to the second quarter for the domestic ruble debt market, the first week of October opened with mixed movement in quotes. In the context of rising yields on foreign markets, the weakening of the ruble against the dollar and a large volume of free funds, market participants on Monday chose not to take drastic actions, which was reflected in low trading turnover. Nevertheless, investors could not resist the temptation to take profits in the bonds of Moscow-39 and Center Telecom of the fourth series, which showed significant growth a week earlier. On Tuesday, correspondent account balances increased by almost 40 billion rubles to 418.3 billion rubles, after which rates on the interbank loan market went down. The depreciation of the ruble against the dollar and the fall in quotations on external debt markets continued to be ignored. Moscow bonds remained the most popular; in the corporate segment, investors felt confident only in the first echelon.

On Wednesday, the domestic debt market continued to move upward, but some first-tier bonds experienced a correction again. The market reacted calmly to the decrease in ruble liquidity in the banking sector (correspondent account balances fell by 31 billion rubles), focusing on the initial placements that had begun. As many expected, the demand for new issues of the Krasnoyarsk Territory and Uralvagonzavod-Finance almost doubled the supply. It is obvious that investors in a “good” market are much less inclined to soberly assess the credit risks of issuers, sweeping away everything at auctions and hoping to earn money by receiving a premium when the paper goes into secondary circulation.

Stock market

At the beginning of the week, the Russian stock market continued to set new historical records. The growth leaders were primarily the shares of oil companies, with the possible exception of Sibneft, in the securities sector of which, according to many market participants, the “great game” has already ended. Interest in the oil sector was to some extent promoted by news of LUKOIL's proposal to buy the Canadian company Nelson Resources, which operates oil-producing assets in Kazakhstan, for $2 billion and the message that ConocoPhilips had increased its stake in LUKOIL to 14.8%. The oil concern's willingness to increase its stake in LUKOIL at prices almost twice the cost of the initially purchased stake indicates its confidence in the long-term attractiveness of the Russian company's business. The market was also influenced by the publication of data that oil exports through the Transneft system reached a new record level of 3.99 million barrels per day in September, exceeding the level of September 2004 by 15%.

Against this background, news of even minor improvements in the business of companies from other sectors supported investors' desire to buy. VSMPO-Avisma's preliminary GAAP results for the first half of 2005 turned out to be an order of magnitude better than the market expected, which was naturally rewarded with a ten percent increase in the company's shares in the run-up to the IPO. Rambler's financial results for the first half of the year were in line with analysts' expectations, but the company's shares rose in price as fund managers' fears that the company would not be able to show the promised revenue growth rates were dispelled.

Shares of companies with good long-term potential continued to grow - AFK Sistema, Irkut, Pyaterochka, Lebedyansky. Recently, investors have shown more and more interest in sectors of the economy that directly depend on consumer behavior - in a country where people are accustomed to spending almost everything they earn, budget oil revenues indirectly end up first in the pockets of consumers, and then allow consumer sector companies to show unprecedented growth rates.

However, the cheerful start of the week and the seemingly non-stop growth in the prices of many shares gave way to a severe correction on Wednesday-Thursday. This time too, the Russian market “imported the problem” from outside. It all started with growing concerns among international investors that persistently high oil prices would not only cause a slowdown in the global economy, but would also lead to a decrease in demand for oil itself on the world market. Therefore, the decline in oil prices on Tuesday was met by profit-taking in the shares of international oil concerns. It didn’t take long for Russian shares to show signs of success and on Wednesday they repeated the feat of their overseas counterparts.

And already on Thursday, buyers who had recently literally torn the Russian market apart withdrew their orders and liquidity “evaporated” for almost all instruments not traded in London. It is difficult to predict how long the buyer's strike will last, but there appears to be a good chance that the market will see lower levels before its players return to their former enthusiasm.

I would also note that many analysts linked the correction that began in the market with new claims from the Prosecutor General’s Office against Yukos Oil Company, which became known on Wednesday evening. However, from my point of view, this is not the case. While the actions of the prosecutor's office against the company still occupy the general public, investors have long turned the page and are investing money in “post-Tyukos” Russia. Many market participants do not see a future for this company and have long been wary of its securities.

Events and money of the past week