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Russia: Stock Market Soaring To Record Highs

  • Stephanie Baker

Moscow, 11 July 1997 (RFE/RL) - After finishing out last year as one of the world's hottest emerging stock markets, Russia is continuing to defy expectations that investors would back off in 1997. Last week, the market closed at an all-time record high. It has continued to make gains this week.

Foreign investors have been pouring money into the stock market since last year, pushing up share prices in some of Russia's mammoth companies to record levels. The hunger for a stake in Russia's fledgling stock market seems insatiable.

The Moscow Times index of 50 leading shares surged 17 percent last week, propelled by a strong flow of funds from foreign investors. The volume of shares traded daily reached $100 million, making many traders sound almost giddy as they described how the market shifted into high gear.

Although trading cooled off some this week, many investment bankers in Moscow predict the bull market will continue with some minor corrections for the rest of the year. Having enticed more than $1 billion so far this year, the Russian bourse is once again positioning itself to win the honored title of one of the best performing emerging markets in the world in 1997, alongside countries such as Brazil.

Dan Rappaport, an equity trader at the Moscow brokerage CentreInvest Securities, said recently: "We expect a continuation of the rally with some hiccups along the way."

The reasons behind the growing interest in the Russian stock market are many. Just a few years ago, the market attracted only the most daring investors who were willing to gamble that Russia would stay more or less on the reform path. Those who took the risk are now sitting happily on hefty profits.

While the boom days are over, the market is continuing to soar because of renewed interest from abroad. Many of the foreign investors who have helped propel U.S. stock markets to record highs have begun to look abroad for cheaper buys. With President Boris Yeltsin's re-election a year ago and a new reform team in place, Russia looks promising to conservative-minded foreign investors.

Market analysts believe Russian shares are undervalued and offer substantial room for growth. Giant Russian companies such as the gas monopoly Gazprom, the national power utility Unified Energy Systems and telephone operator Rostelekom have watched their share prices surge over the past year.

At the same time, Russian companies are beginning to turn to international markets to raise capital. Gazprom last year issued share look-alikes which are traded abroad at about three times the price of their domestic shares. For Gazprom alone, the potential for growth is enormous. Gazprom controls one-third of the world's gas reserves and raked in $5 billion in profits last year.

Many Russian companies have realized that, in order to attract outside investment, they need to become more transparent. A growing number of companies, including Rostelekom and oil giant Lukoil, are issuing financial reports fashioned after Western models. Gazprom is currently working on a Western-style audit which investors hope will finally give them a sense of the company's true profitability.

While investments into the stock market and government bonds are souring, Russian industry has been left behind. Direct foreign investment in Russia last year was estimated at about $1.5 billion, while twice that amount poured in the stock market.

The Russian government hopes to reduce its costs of borrowing and bring down yields on government bonds, which would in turn reduce interest rates and free up funds for direct investment. But until then, the stock market is likely to remain the main vehicle for investment into Russia's nascent market economy.
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