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Further decline of oil prices down to the level of USD 50 per barrel has provoked a decrease of the Russian bonds quotations, first of all in the oil sector. Another negative factor was the downgrading of the US securities. However, at the beginning of the third week of the month significant changes took place in price formation. Thus, oil prices have been stabilized and then started to grow, which provided an immediate effect over the quotations of the oil companies. Moreover, a number of positive corporate news of RAO UES of Russia, Severstal, Rosneft have supported those companies security rating and the market in general.

In general, within the period of December 29, 2006 January 26, 2007 RTS index has declined by 3.per cent and reached 1863.28 points, which makes about 58.64 points in absolute terms. At the same period the turnover of sales on shares, included in the RTS index, made about USD 779.9 mln at the average daily turnover at the level of USD 55.7 mln (as compared with about USD 917.6 mln at the average daily turnover at the level of USD 57 mln). Therefore, the investors activity in the stock market in January was practically the same as in preceding month. The indicators of maximum and minimum turnover in the market trades in January made USD 81.1 mln (as of January 25) and USD 26.5 mln (January 26), accordingly.

As of monthly results (from December 22 trough January 26) the blue chips have shown a variable dynamics. Thus, the leading positions in terms of growth took the shares of the RF Sberbank (13.64 per cent), RAO UES of Russia(13.33 per cent), Gazprom Neft (9.22 per cent), Norilsk Nickel (7.17 per cent) and OAORostelecom", (5.56 per cent). As opposed to those ones, the quotations of other companies were getting down; among them are Mosenergo (-2.89 per cent), Rosneft (- 3.46 per cent), Gazprom (- 6.04 per cent), Tatneft (-6.67 per cent), LUKOIL (-7.43 per cent) and Surgutneftegas ((-15,07 per cent).

FIG. 3.

170 1 950.160 1 875.The total volume of trading ($) 150 1 800.The RTS Index 140 1 725.130 1 650.120 1 575.110 1 500.100 1 425.90 1 350.80 1 275.70 1 200.60 1 125.50 1 050.40 975.30 900.20 825.10 750.675.FIG 4.

Dynamics of the Russian Blue Chips from December 22, 2006 to January 26, 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% Change in price (%) In January the RTS turnover leaders5 were: RAO UES of Russia (35.8 per cent), Sberbank of Russia(13.2 per cent) Gazprom (11.4 per cent), LUKOIL (8.1 per cent),, Norilsk Nickel (6.9 per cent) On the classical market.

points mln US dollars s GMK LUKoil Rosneft Russia Gazprom NorNikel Russia RAO UES Mosenergo Rostelekom Sberbank of Gazprom Neft Surgutneftegas and Surgutneftegas (4.8 per cent). The total share of trading of those companies made about 80.2 per cent of the RTS gross turnover of securities.

In terms of capitalization, as of January 26 the top five leaders of the domestic share market were6: Gazprom (USD 255,9 bln, Rosneft (USD 81,1 bln, LUKOIL ( USD 68,1 bln, Sberbank of Russia (USD 66.6 bln,) Surgutneftegas (USD 44.1 bln).

Futures and options market In January the investors activity on the RTS futures and options market (FORTS) has practically unchanged as compared with the preceding month. Thus, from January 9 to 26 the total turnover on the RTS futures and options market amounted to approximately RUR 212.2 bln (433.6 thousand of transactions, 5.mln of contracts) against RUR 228.47 bln (394.5 thousand of transactions; 6.76 mln of contracts in the first three weeks of December).

The greatest demand, as before, was for futures: the volume of trading in futures in the period under review was RUR 186.5 bln (423.5 thousand of transactions, 4.9 mln of contracts). Options enjoyed a far lower demand, with the volume of trading at about RUR 25.7 bln (10.2 thousand of transactions and 0.796 mln of contracts). The highest level of trading in the futures market was RUR 19.77 bln (as of January 23), the lowest was RUR 10.4 bln (as of January 26).

Corporate bond market After the long New Year holidays there were little changes in the quotations of bonds, traded in the corporate debt market. Favorable situation in the bank sector liquidity, as well as the absence of large placements served as supporting factor to the market. At the same time, rather low activity of investors and an aggravated situation in the external market due to downgraded oil prices and stock market decline did not contribute to the market growth. Despite the lively activities within the second and third weeks of the month, there were no explicit changes in the market situation. The dynamical indicators were the same; the majority of investors were selling the issues with long-term maturity and invested the assets in shorter-term securities.

The greatest decline was observed in regard to the market leaders, whereas changes in the quotations of less reliable companies were not so expressed or even stabilized. Some impact over the corporate bond market was provided by primary placements in the segment of government securities.

FIG. Dynamics of corporate bond indices 122.ZETBI-Corp ZETBI-Corp120. According to RTS data. a result, from January 9 thorough 26 the price index of corporate bonds traded on MICEX7 went down by 0.08 points (-0.07 per cent), whereas the index of the ten most liquid corporate bonds has demonstrated a decline by 0.23 points (- 0.2 per cent). In the same period the total turnover on the MICEX corporate bond section amounted to RUR 23.5 bln, with an average daily turnover at the level of RUR 1.68 bln (about RUR 23.25 bln with an average daily turnover in of RUR 1.68 bln in December).

External factors behind Russian stock market dynamics At the beginning of the new year oil quotations were declining. By the end of 2006 the oil price exceeded USD 60 per barrel, whereas in the first days of the current year it has dropped to nearly USD 55 per barrel.

Up to the second half of the month the oil prices have declined to the level of about USD 50 per barrel, but then a positive trend to growth has started. The basic grounds for reduction was an abnormally warm weather in USA, the world leader among oil consumers. Besides, OPEC is intended to cut down official supplies only from February 1. However, its members express now different opinions as to further actions, and the reduced supplies can only formally set up the current level of oil extraction volume and its supply to the world market.

The situation in the world stock markets in January remained quite favorable (see Table 1). The majority of the stock indicators of both, industrialized and developing countries within the month have grown, excluding the Brazilian Bovespa index, which has demonstrated a decline (- 0.14 per cent) and South Korea Seoul Composite (-4,4 per cent).

FIG. 6.

220% Dow Jones Industrial Average 200% NASDAQ Composite The RTS Index 180% 160% 140% 120% 100% 80% Corporate news LUKOIL On January 12 the company has disclosed consolidated financial reporting for the first nine months of 2006, developed in accordance with the USA general accounting rules(U.S. GAAP).Within the nine months of 2006 the net profit made USD 6 442 mln, what is higher than the profit made in the relevant period of by 34.2 per cent. The EBITDA indicator (Earnings Before Interest, Taxes, Depreciation and Amortization) has grown by 32.9 per cent and reached USD 10,178 mln. Sales proceeds raised to USD 51 459 mln, i.e. by 27.9 per cent.

The calculation was based on indices of corporate bonds traded on MICEX. The indices were produced by the Zenit bank. profit growth is based on favorable market situation, increased volume of extraction and processing and effective control over expenditures, as well as higher oil refining margins. However, the growth of proceeds was restrained by ruble strengthening against dollar and increased tax burden.

Mosenergo On January 15 the company has informed that the campaign on emission of additional shares is in the final phase. According to Mosenergo information, the complete package of documents, required for registration of additional shares emission, are submitted to the Federal Service on Financial Markets (FSFM) on January 10, 2007. In case of positive decision of FSFM, Mosenergo shareholders will be informed about the term for prioritized acquisition of additionally emitted shares. According to the law, the duration of such term is 45 days. Upon expiration of that term the shares will be distributed under closed subscription in favor of the strategic partner. Gasprom. The assets from the emission of additional shares are expected to be gained in April-May of 2007; they will be addressed to financing of the company investment program.

Gazprom On January 16 a meeting of Gazprom Board of Directors was held in a distant form. The Board of Directors has approved the changes to be introduced in the investment program and budget plan of Gazprom for the year of 2006. According to the approved changes to the investment program, long-term financial investments are increased from RUR 85.46 bln to RIUR 133.67 bln. Hence, the amount of investments in 2006 is increased from RUR 373.14 bln to RUR 458.6 bln.

According to the approved changes in the budget, the total amount of income and monetary assets inflow, including the assets as of beginning of the period under review, makes RUR 2 trillion 228 bln, i.e. by RUR 17.21 bln more than in the budget plan, approved in September 2006. The total amount of liabilities, expenses and investments in monetary form will make USD 2 trillion 343 bln, i.e. by RUR 45.27 bln more than the budget, approved in September 2006. The amount of debt is increased by RUR 28.91 bln and will make RUR 118.91 bln.

The adjustments are made to the investment program and the budget plan due to Gazprom acquisition of NOVATEC shares from ZGG Gmbh and Mosenergo shares from NPF Gazfond. The expenses are covered by sales proceeds from disposal of Gazprom shares of AB Gazprombank (ZAO), redistribution of company expenses and involvement of extra credit funds.

Sberbank of Russia On January 29 the bank has informed about an issue of additional ordinary shares for physical persons and legal entities on the territory of the Russian Federation. Placement will come up to 3.5 mln of ordinary shares of the bank. The gained receipts the bank is going to invest in expansion of activities, primarily in credit operations for the development of Russian economy and for physical persons, as well as for operations with securities. ZAO Bank Credit Swiss (Moscow department) and Commercial bank J. P. Morgan Bank International (OOO) will be involved in the issue and act as brokers and book-runners.

Foreign currency market.

As of results of the month, from January 10 to 27 the USD exchange rate against RUR has demonstrated some growth, having raised by RUR 0.11 (0.42 per cent) as compared with the rate of beginning of the month, and made RUR 26.56 to USD 1. The total volume of trading in USD on SELT in the same period amounted to about USD 29.4 bln at an average daily turnover of USD 2.1 bln (about USD 37,5 bln at an average daily turnover of USD 2.88 in December). Therefore, trading activity of the participants of foreign currency market has slowed don as compared with the preceding month. The largest amount of trading in USD was noted on January 1, when it amounted to about USD 2.8 bln, the minimum level of USD 759.mln was observed on January 15.

The ruble liquidity in the banking sector has been sustainable in January as compared with the relevant indicators of December 2006: the average balance of credit agencies correspondent accounts in the Bank of Russia in January was about RUR 484.85 bln against December indicator of about RUR 483.86 bln.

From January 1 to 26 Euro rate in the world market has declined by USD 0,028 (- 2.13 per cent) to the level of USD 1,2922 for EURO 1. In this background some decrease of EURO against RUR was observed in January. In the period from January 10 to 27,the EURO rate has decreased by RUR 0.169. (- 0.49 per cent), namely from RUR 34.49 to RUR 34.32 for EURO 1. The total volume of trading in EURO on SELT in the period from January 9 to 26 amounted to about EURO 682,8 mln at an average daily turnover of EURO 48.mln (about EURO 742 mln at an average daily turnover of EURO 57.1 mln in December).

Therefore, the trading activity of the European currency in the Russian foreign currency market has somewhat decreased as compared with the preceding month. The largest amount of trading in EURO within the period under review was observed on January 16 at the level of EURO 59.1 mln, the minimum level of EURO 39.3 mln was noted on January 10.

Table 1.

Dynamics of international stock market indices Dynamics within Dynamics since Data as of January 26 Value the month(%)8 the year beginning (%) RS (Russia) 1863.28 3.59% 3.59% Dow Jones Industrial Average (USA) 12487.02 0.19% 0.19% NASDAQ Composite (USA) 2435.49 0.84% 0.84% S&P 500 (USA) 1422.18 0.27% 0.27% FTSE 100 (UK) 6228.00 0.12% 0.12% DAX-30 (Germany) 6690.34 1.42% 1.42% CAC-40 (France) 5582.30 0.73% 0.73% Swiss Market (Switzerland) 9041.10 2.91% 2.91% Nikkei-225 (Japan) 17421.93 1.14% 1.14% Bovespa (Basil) 44412.00 -0.14% -0.14% IPC () 27045.71 2.26% 2.26% IPSA (Chile) 2853.04 5.93% 5.93% Straits Times (Singapore) 3087.74 3.41% 3.41% Seoul Composite (South Korea) 1371.33 -4.40% -4.40% ISE National-100 (Turkey) 41846.38 6.98% 6.98% Morgan Stanley Emerging Markets Free Index 901.98 -1.18% -1.18% FIG. 7.

Dynamics of the Official USD/RUR and EUR/RUR Exchange Rates in 2005-37.Official USD/RUR exchange rate 36.Official EUR/RUR exchange rate Versus index indicator valid on September 27, 2006.

roubles 8.

Dynamics of the Dollar/Euro Exchange Rate on the International Markets 2.

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