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The Market for Corporate Securities The business situation on the stock market. In January, the business situation on the Russian stock market somewhat improved in comparison with the preceding month. However, during the month the situation on the market fluctuated. In the first two trade weeks of the first month of the new year the trading demonstrated no significant fluctuations, since investors were rather inactive, what was in part determined by a small number of participants taking part in the operations after the long holidays. The major operations on the market were exceptionally of the speculative nature, what determined the dynamics of quotations. The RTS index was at about 600 points. The statement made by A. Miller to the effect that in the course of liberalization of the Gazprom stock market the quotas relating to the holdings of the companys stocks by nonresidents might be abolished had a short term positive impact on the market of securities. 800.The total volume of trading ($) 80 750.The RTS Index 70 700.60 650.50 600.40 550.30 500.20 450.10 400.350.Figure 3.

At the same time, by the end of the month the activity of investors increased, what determined a growth of the market. It seems that the factor behind the growth in quotations was the fact that large foreign investors came to the market and formed a significant demand for Russian blue chips, since the domestic and foreign news remained on the whole neutral.

On the whole, in the period from January 11 till January 28, the RTS index increased by 2.89 per cent or by 17.6 points in absolute terms. Over the same period, the turnover of the RTS trading amounted to about US $ 138.1 million, while the average daily turnover at the RTS made about US $ 10.6 million (US $ 18.7 million in December of 2004). Therefore, in comparison with the data collected in the preceding month, the activity of investors has significantly declined in January of 2005.

The highest and the lowest volumes of trade at the RTS made US $ 26.7 million (on January 28) and US $ 3.2 million (on January 17) as compared with US $ 47.3 million and US $ 4.3 million respectively in December.

Over the last month (from December 11 till January 28), the majority of blue chips demonstrated an increase in prices. The leaders in terms of the upward movement of prices were the shares in Norilsk Nickel, which gained 8.43 per cent in January. The Norilsk Nickel stocks were followed by the shares in Tatneft (+ 8.01 per cent), RAO UES of Russia (+ 3.25 per cent), NK LUKoil (2.36 per cent), and OAO Surgutneftegaz (+ 2.05 per cent). The shares in Mosenergo and Sberbank demonstrated practically zero dynamics (the prices of these securities increased by mere 0.34 per cent and 0.per cent). At the same time, the shares in YUKOS, Rostelekom, and Sibneft demonstrated the negative dynamics of prices (- 19.78 per cent, -2.98 per cent, and -0.34 per cent respectively).

points mln US dollars s of the Russian Blue Chips from 11 to 28 of January, 10% 5% 0% -5% -10% -15% -20% -25% Change in price (%) Figure In January, the list of leaders in terms of the volume of turnover at the RTS7 looked as follows: the shares in the RAO UES of Russia (30.51 per cent), LUKoil (21.81 per cent), and Sberbank of Russia (5.49 per cent). Besides, according to the results of weekly trade, among the leaders in terms of the volume of turnover were also the securities of Norilsk Nickel and Rostelekom.

As on January 28, the top five leaders of the national stock market by capitalization looked as follows8: Surgutneftegaz: US $ 26.28 billion; LUKoil: US $ 25.35 billion; Sibneft: US $ 14.01 billion;

the RAO UES of Russia: US $ 11.62 billion; and GMK Norilsk Nickel: US $ 12.17 billion.

The market for fixed term contracts. In January, the activity of investors on the RTS market for fixed term contracts (FORTS) was at a rather low level in comparison with the December indicators, what may be partially explained by the long holidays. Thus, in the period from January 11 till January 28, the aggregate volume of trade in futures and options at the RTS amounted to about RUR 18.2 billion (87.6 thousand transactions; 2.4 million contracts).

Futures contracts accounted for the greatest percentage of transactions: the volume of trade in these contracts made RUR 15.97 billion (2.05 million contracts, 83.65 thousand transactions) over the period under observation. As before, options were in a much lower demand: the respective amount of trading made about RUR 2.2 billion (279.9 thousand contracts, 3.9 thousand transactions). The maximum trading volume was observed on January 28 and made RUR 1.99 billion, while the minimum trading volume (RUR 639.4 million) was registered on January 11.

Corporate bond market. In January, the quotations of the bonds issued in the corporate sector changed insignificantly. Similarly to the market of Ruble denominated public debt, the corporate sector of the debt market was affected by the news incoming from the forex market. The US $ appreciation started immediately after the New Year holidays decreased the attractiveness of Ruble denominated debt instruments. Growing inflationary expectations caused by the publication of the official data on inflation rates registered in 2004, which significantly exceeded the target indicators, also facilitated a growth in yields. By the end of the month, the decline of the market has somewhat decelerated in spite of unfavorable dynamics of the US $ exchange rate. It seems that the market has On the classical stock market.

According to the RTS.

Ukos Tatneft Sibneft GMK LUKoil Russia Russia NorNikel RAO UES Mosenergo Rostelekom Sberbank of Surgutneftegas ated in spite of unfavorable dynamics of the US $ exchange rate. It seems that the market has formed a certain immunity to the fluctuations of the exchange rate: in spite of the US $ appreciation, the quotations of certain liquid issues increased.

From January 11 till January 27, the price index of corporate bonds traded at the MICEX9 decreased by only 0.03 points (by 0.03 per cent), while the index of ten most liquid corporate sector bonds decreased by 0.16 points (by 0.14 per cent). In the period from January 11 till January 27, the total turnover in the bond sector of MICEX made about RUR 5.6 billion and the average daily turnover was at the level of about RUR 430.8 million (RUR 2.42 billion in December). Therefore, the activity of participants of the market of corporate debt instruments remained at an extremely low level.

Dynamics of corporate bond indices 122.ZETBI-Corp ZETBI-Corp120. External factors affecting the dynamics of the Russian stock market. Immediately after the New Year holidays, the world oil market demonstrated a growth in spite of insufficiently optimistic data on the fuel reserves in the USA. Cold weather in the USA (the temperatures were by 8 to 10 centigrade below the yearly average) had a certain impact on prices. In January, the oil quotations were also supported by the comments of OPEC member countries representatives made in favor of a decrease in official quotas in relation to the observed overproduction at the OPEC summit planned for January 30.

In January, the situation on world stock markets remained unfavorable (see Table 1). The majority of stock indices of developed countries were characterized by a decline in stock indices. A somewhat better situation was observed on the markets of a number of developing countries.

As concerns the USA, in this country January became a month of decline in stock quotations; the factors behind these developments were the rise of the world oil prices, depreciation of US currency, deceleration of the rates of growth in the proceeds of US corporations. The data presented by the US FRS also had a significant impact on the market. According to the presented data, in the US economy there was observed an increase in inflationary expectations, what made more probable a further raise of interest rates. Such factors as a relatively low growth in yields of government bonds prevented a more significant decline of the market.

The indices of corporate bonds traded at the MICEX that have been used for the calculations are calculated by Zenit Bank. Dow Jones Industrial Average Nasdaq Composite The RTS Index 130% 120% 110% 100% 90% 80% Figure Corporate news.

The OAO LUKoil On the first trading day of the month, the company published its consolidated financial statement for the first 9 months of 2004 prepared in accordance with the US GAAP.

According to the presented data, in the first 9 months of 2004, the companys net profits made US $ 3 095 million, what was by US $ 1 292 million above the figures registered in the respective period of the preceding year (not adjusted for the influence of the accumulated effect of changes in accounting policies and the results of the sale of the companys share in the Azeri Chirag Guneshli project amounting to US $ 1 262 million). Besides, the amount of taxes (without the profit tax) paid to the RF budget made US $ 2.46 billion, what was by more than 40 per cent above the level registered in the respective period of 2003. The growth in net profits was caused by the favorable price situation on the world raw materials market and better control over expenditures. At the same time, the increase in profits was checked by the growth in the tax burden, Ruble appreciation, and the continuing growth in transport costs.

The OAO Sibneft On January 24, the company announced the changes in the number of own shares per one American Depositary Receipt (ADR). Since January 24, one ADR should be equal to 5 ordinary shares of Sibneft. Previously, one ADR was equal to 10 ordinary shares of Sibneft. Therefore, the number of issued ADR should be doubled and their owners would receive one additional receipt for each ADR held by them. This step was taken in order to increase the liquidity of Sibneft own shares traded on international markets. At present, the Sibneft first level ADR are traded at the Frankfurt and Berlin stock exchanges.

OAO GMK Norilsk Nickel At the end of January, the company informed the public about the results of examination of the applications submitted by its shareholders in relation to the purchase by the company of its own placed shares, as it was decided by the Board of Directors of the GMK Norilsk Nickel at its meeting held on December 2, 2004. On December 3, 2004, the company announced that it was ready to purchase up to 12.5 million its shares (5.8 per cent of the authorized capital) at the price of RUR 1 680 per share, to total amount of RUR 21 billion. The total number of properly made applications with respect to the sale of shares submitted by the shareholders to the ZAO National registration company reached 372, of which 207 were submitted by legal entities and 165 by individuals. The total number of shares offered for sale by the shareholders made 59 761 360 pieces, of which 57 965 450 were offered for sale by legal entities and 1 795 910 shares were offered by individuals. Since the total number of shares offered for sale made 59 761 360 pieces and exceeded the number of 12 500 000 shares offered for purchase, the company should determine the final number of shares purchased from shareholders on the proportional basis.

Table Dynamics of international stock market indices Change within the Change since the Data as on January 28, 2005 Value month (%)10 beginning of the year (%) RTS (Russia) 625.15 2.89% 2.89% Dow Jones Industrial Average (USA) 10427.20 -2.82% -2.82% Nasdaq Composite (USA) 2035.83 -5.40% -5.40% S&P 500 (USA) 1171.36 -2.56% -2.56% FTSE 100 (UK) 4832.80 -0.29% -0.29% DAX-30 (Germany) 4201.81 -2.09% -2.09% CAC-40 (France) 3870.35 0.38% 0.38% Swiss Market (Switzerland) 5750.70 -0.31% -0.31% Nikkei-225 (Japan) 11320.58 -1.71% -1.71% Bovespa (Brazil) 23968.00 -6.82% -6.82% IPC (Mexico) 13040.53 0.14% 0.14% IPSA (Chile) 1799.67 0.21% 0.21% Straits Times (Singapore) 2089.51 0.94% 0.94% Seoul Composite (South Korea) 921.59 3.12% 3.12% ISE National-100 (Turkey) 27074.09 6.40% 6.40% Morgan Stanley Emerging Markets Free Index 535.71 -1.20% -1.20% The Foreign Exchange Market. In January, on the forex market there prevailed the trend towards the US $ appreciation against the Ruble. Due to the long national holidays, the first trading week of 2005 was marked by the key segments of the Russian financial market reflected the developments observed over that time on the world markets. First of all, this concerned the foreign exchange market:

in the beginning of the month the US $ / Ruble exchange rate significantly increased, what was the reaction of the market to the dynamics of the US $ / Euro exchange rate. Therefore, the trend towards the Ruble appreciation observed over the last two months of 2004 had significantly slowed down. By the end of the month, the sharp increase stopped and the exchange rate stabilized at the level of Rub.

28.0 per US $.

In the period from January 1 till January 27, the US $ appreciated by RUR 0.34 (by 1.21 per cent) and made RUR 28.085 per US $. The aggregate volume of trade in the US Dollar at the SELT in the period from January 1 till January 27 made about US $ 27.3 billion. Over this period, the average daily turnover made US $ 2.09 billion (as compared with US $ 2.09 registered in December), what was somewhat below the respective indicator registered in December. During the period under review, the highest volume of trade in the US Dollar, about US $ 4.18 billion, was observed on January 21; the lowest volume, US $ 863 million, was observed on January 17.

This January, the Ruble liquidity in the banking sector demonstrated a certain decrease in comparison with the figures registered in December of 2004: the average balances of correspondent accounts of credit organizations with the Bank of Russia made about RUR 321.4 billion as compared with RUR 371.8 billion registered in December of 2004. In spite of these developments, the amount of liquidity is still at a rather high level.

In relation to the levels registered on January 11.

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