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Yields to maturity of the Russian eurobonds with maturity in 2003, 2007 and 2028 in February through May 11,5% 11,0% 10,5% 10,0% 9,5% 9,0% 8,5% 8,0% 7,5% 7,0% 6,5% 6,0% 5,5% 5,0% 4,5% 4,0% USD-2003 USD-2007 USD-The market for the Russian domestic debt demonstrated a tendency to a decline in interest rates at growing volume of trades in May 2002. In our view, the rising interest in GKOs and OFZs is explained, first, by a drop in inflation rates making investments in bonds attractive at current interest 01.02.06.02.11.02.14.02.19.02.22.02.28.02.05.03.11.03.14.03.19.03.22.03.27.03.02.04.05.04.10.04.15.04.18.04.23.04.26.04.07.05.14.05.17.05.22.05.27.05.01.02.06.02.11.02.14.02.19.02.22.02.28.02.05.03.11.03.14.03.19.03.22.03.27.03.02.04.05.04.10.04.15.04.18.04.23.04.26.04.07.05.14.05.17.05.22.05.27.05.rates. Second, the RF Ministry of Finance enlarged additional placements of securities (the additional placements accounted for up to 50% of daily turnover in the secondary market on some days). Third, in May the placed securities were short (GKO 21160) or new ones OFZ with amortisation of debt, i.e. bonds with principal redeemed by portions over the maturity.

The market for corporate securities.

The situation in the market. In May the RTS Index grew by 5.16 points (1.34%) at the trade volume of about $454.1 million. The latter is a bit lower the respective value in April $468.9 million.

The daily average turnover rose compared to the previous month by $3.6 million and amounted to $23.9 million. The maximum trade volume was fixed on May 30 and equalled $43.5 million. The month started with an increase in the Index on May 20 the RTS Index the new post-crisis maximum value4 425.43 points (+10.19% against close value on April 30). Further the market slid down and the RTS Index fell to the level of 391.26 points.

FIGURE 3.

The total volume of trading ($) The RTS Index The leaders among blue chips (in May) were: Surgutneftegaz (10.92%) and Gazprom (6.73%).

The price of YUKOS stocks actually did not changed (0.8%). Some stocks substantially fell:

Sibneft (-7.65%), Tatneft (-10.27%) and the RAO UES Russia (-11.1%). At the bottom of the list were stocks of Mosenergo (-20.77%) and Rostelecom (-21.47%). Among the second echelon the leaders were stocks of TH GUM (+18.42%), Bashinformsvyaz (+16.67%) and AutoVAZ (+12.69%).

In May, the share of common stocks of RAO UES Russia in the total RTS turnover grew up to 27.13% (in April 22.47%), the share of LUKoil stocks dropped to 21.31% (24.45%), the share of Surgutneftegas was 13.4% (8.24%), YUKOS 10% (7.16%),Tatneft - 6.54% (8.35%),. Overall in May the total share of the five most liquid stocks in RTS rose up to 78.38% (in April 70.67%).

The previous higher value of the stock index was fixed on November 6, 1997 - 438.34.

points mln US dollars 03.05.01.06.02.07.30.07.27.08.24.09.22.10.20.11.19.12.21.01.18.02.20.05.20.03.17.04.FIGURE 4.

Dynamics of the Russian Blue Chips between April 30 to May 31, 15% 10% 5% 0% -5% -10% -15% -20% -25% Change in price (%) Between May 1 to May 31, 2002, the trade volume with Gazprom stocks via RST terminals exceeded $142 million (more than 136 million shares). Overall 10.5 thousand deals were stroke with the companys stocks.

In May the five biggest Russian corporations by capitalisation were (according to the RTS data):

GAzprom $24.7 billion, YUKOS $22.5 billion, Surgutneftegaz $15.2 billion, LUKoil $14.9 billion and Sibneft $8.3 billion. We should note four Russian corporations: YUKOS, LUKoil, Gazoprom and Surgutneftegaz entered the list FT-500 of corporations by capitalisation.

Once again in May one registered a growth in trade activity in the futures and options market. On May 28 next records were fixed. There were registered more than 2.78 thousand deals totalled up to 694 million roubles (124.5 thousand contracts). The open interest got its next maximum on May and amounted to 1189 billion roubles (169 thousand contracts). Overall in May the turnover in the FORTS made 5448 billion roubles (24.47 thousand deals, 0.98 billion contracts).

In May prices for most of liquid corporate bonds grew in the secondary market and yields fell below 20% annualised. Large primary placements as well as GKO and OFZ auctions drew away capital from the secondary market for corporate debts. On the whole, the situation in the corporate bonds market is determined by a decline in yields in the GKO-OFZ market and lower costs of borrowing in the interbank market. The trade volume in the secondary market (MICEX) went somewhat down and amounted to about 2.32 billion roubles. The share of TNK bonds (4th issue, 1st tranche) was 26.5% (25.22%, in April), North oil (1st issue) 10.23%, TNK (5th issue, 1st tranche) 6.9% (8.73%), NOMOS (6th issue) 5.42% (5.94%) and MCTN (2nd issue) 4.2% (0.38%). In total, the share of five most liquid bonds in the MICEX turnover made 53.25%. Also one should note primary placements of corporate bonds held by Nizhnekamskneftekhim (2nd issue) (1500 million roubles), Nevinnomysk Nitrogen (1st issue) (800 million roubles), Volzhsk pipe plant (1st issue) (500 million roubles), LOMO (1st issue) (200 million roubles) External factors having impact on the Russian stock market. In early May the oil prices continued to grow and by mid-May the price of Brent exceeded 27 $/bbl, the price of the OPEC oil basket amounted to 26.44 $/bbl. In particular, the dynamics was stipulated for OPEC ministers talks at their meeting in Cairo about keeping current quotes on oil export. On May 13 the International Energy Agency published a report which recorded the oil extraction in April in 11 OPEC countries (including Iraq) amounted to 24.01 million bbl/day. The latter was the minimum value since 1993.

t s a a o il el m as o g eft om ssi ssi nef n er eg t u u b pr Uk eko n UKo rNik eft Ta Si R R el az L n S st G of E o ut Mose k g K No R U ur O ban S GM er RA b S However, in the second half of the month the pattern in the market changed, and the quotations dropped to the level of mid-April.

The Russian Prime Minister M. Kasyanov at the meeting with top-managers of the biggest Russian oil companies decided to cancel restrictions on oil export. The head of the RF Government said that the previous volume of export would be restored in about 2 months.

The Minister of Finance L. Koudrin said that Russia would not restrict oil exports once the price for Urals exceeds 20 $/bbl. Between January to May, 2002, the average price for Urals was at the level of 21.5 $/bbl, Brent 23 $/bbl.

FIGURE 5.

Dynamics of Brent Oil in the USA (NYMEX) 01.05.01 28.05.01 02.07.01 02.08.01 04.09.01 05.10.01 08.11.01 11.12.01 21.01.02 27.02.02 03.04.02 17.05.FIGURE 6.

Dow Jones Industrial Average 240% Nasdaq Composite 220% The RTS Index 200% 180% 160% 140% 120% 100% 80% 60% dollars per barrel.

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.Another important bearish factor in May was the fact that the US stock indices went down: DJIA lost 34.53 points (0.35%), and NASDAQ 56.31 points (-3.34%).

On May 7 the Fed decided to keep the interest rate at the level of 1.75% in order to stimulate the slow recovery of economy by rather cheap credit resources for consumers and business. The Fed spokesman said that there was an uncertainty towards consumer demand, but the risk of inflation and recession remained balanced.

On May 20 there were appeared data on the U.S. leading index calculated by Conference Board, which demonstrated in April the biggest decline for last seven months (by 0.4%). This fact can be considered as a sign of slowdown in rates of recovery of the US economy.

On May 2 the international rating agency Fitch Ratings upgraded the Russias long-term rating on foreign liabilities (forecast positive) and on eurobonds from B+ to BB- and confirmed the short-term rating on foreign liabilities at the level of .

Corporate news.

Gazprom. The reported net profit in 2001 (according to the Russian accounting standards) was billion roubles ($2.4 billion). Although it grew by one and a half time (in roubles) against 2000, the figure was about a third below the level of 100 billion roubles ($3.4 billion), forecasted by the companys officials.

Rostelecom. Rostelecom released its financial results for 2001 according to international accounting standards. The receipts decreased by 3% to $862 million. Receipts from incoming international traffic declined near by 20% to $171 million. Receipts from regional operators for outgoing international traffic grew by 44% to $153 million, for inter-city traffic by 18% to $million. The net profit of Rostelecom in 2001 equalled $149 million against the loss of $64 million in 2000.

On April 30 the international rating agency Standard & Poors upgraded the companys credit rating from "CCC" to "B-" (forecast stable). The decision was made after annual inspection and reflects, in the first line, improvements in financial state, successful restructuring of short-term debt and higher potential to serve debt liabilities. The agency reported the main reason for upgrade was dominant position of Rostelecom in the Russian market for long-distance communication, and stable growth of demand for communication services.

MMC Norilsky Nickel. Receipts of MMC Norilsky Nickel in 2001 according to the Russian accounting standards amounted to 107 billion roubles ($3.66 billion); consolidated profit 32.9 billion roubles ($1.1 billion). The net profit, after 16.3 billion roubles ($560 million) were transferred because of passing social assets to Norilsk balance, equalled 16.9 billion roubles ($580 million.) MMC Norilsky Nickel announced purchasing 35 million of 38.8 million shares of RAO Norilsky Nickel under restructuring programme, i.e. the cross-shareholding was near cancelled. The companys officials said the MMC purchased other 3.8 million shares of RAO till June 15.

AvtoVAZ. According to quarter report, AvtoVAZ sales in the first quarter of 2002 grew by almost 20% to 23.9 billion roubles ($777 million). At that operational profit declined by 0.5% to 3.billion roubles ($119.4 million). The net profit fell by 4.5% to 1.7 billion roubles ($54.7 million.) The Board of Directors recommended the annual shareholders meeting to approve dividends on preferred stocks at 47.583 roubles ($1.53) per share, i.e. implied dividend yield equalled 8.9%.

Mosenergo. The Mosenergo officials said the companys net profit in the first quarter of 2002 fell sharply to $23 million ($98 million for respective period in 2001). This fact is explained by an increase in tariffs for gas and in service fee. None-of additional costs was compensated by simultaneous increase in tariffs for energy consumers.

Aeroflot. Aeroflot released its financial results for 2001 according to the Russian accounting standards. Receipts amounted to 41.518 billion roubles, net profit 1.315 billion roubles. The company plans to invest in fixed capital 193 million roubles and to spend 247.1 million roubles to cover losses of 1998 and 1999, to modernise machinery 59.0 million roubles, to pay dividends million roubles. At the same time, 680 million roubles will be paid to the State Service for Civil Aviation.

TABLE 1.DYNAMICS OF THE FOREIGN STOCK INDEXES as of May 30, 2002 value change for last change since beginning of month (%) the year (%) RTS (Russia) 379 -1.84% 45.74% Dow Jones Industrial Average (USA) 9911.69 -0.35% -2.22% Nasdaq Composite (USA) 1631.92 -3.34% -17.88% S&P 500 (USA) 1064.66 -1.14% -8.30% FTSE 100 (UK) 5040.80 -2.42% -3.85% DAX-30 (Germany) 4761.96 -5.54% -7.72% CAC-40 (France) 4260.14 -4.54% -7.88% Swiss Market (Switzerland) 6544.10 -0.21% 1.97% Nikkei-225 (Japan) 11770.03 2.41% 11.64% Bovespa (Brazil) 12985 -0.76% -4.37% IPC (Mexico) 7061.40 -5.61% 9.19% IPSA (Chile) 92.83 -3.47% -14.91% Straits Times (Singapore) 1683.43 -2.43% 3.53% Seoul Composite(Korea) 815.61 -3.17% 17.57% ISE National-100 (Turkey) 10508.09 -8.16% -23.76% Morgan Stanley Emerging Markets Index 351.027 -0.51% 10.59% Foreign exchange market.

As we noted in the Monetary policy section, in May 2002 the Bank of Russia intensified its purchases of foreign exchange in the market and accumulated maximum volume of foreign reserves.

Hence, the demand for US dollars from CBRs side resulted in some acceleration of pace of rouble devaluation. Nevertheless, current devaluation rates (0.250.% per month) are below inflation rates, and the real rouble exchange rate appreciates. Notably, the demand for foreign exchange from commercial banks dropped compared to previous months, and in the absence of rouble interventions of the Bank of Russia the rates of real appreciation could be higher.

In total, in May 2002, the official dollar exchange rate grew from 31.1963 roubles/$ to 31.roubles/$, i.e. by 0.36% (4.35% annualised, see Fig. 7). The today dollar exchange rate in the SELT increased from 31.1959 roubles/$ to 31.3281 roubles/$ (as of May 28), i.e. by 0.42%. The tomorrow dollar exchange rate went up from 31.2468 roubles/$ to 31.3316 roubles/$ (as of May 28), i.e. by 0.28%. According to preliminary estimates, in May the trading volumes by dollar amounted to 100 105 billion roubles.

FIGURE 7.

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