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FIG. Dynamics of corporate bond indices 122.ZETBI-Corp ZETBI-Corp120. factors influencing the behavior of the Russian stock market During the greater part of the month, oil prices were going down on the international market. The fall in prices was caused by a substantial growth of oil reserves in the USA, as well as by the lowered rates of the global demand for oil forecasted by the International Energy Agency. The prices were to a certain degree influenced by the OPECs position: in face of the lowering prices being witnessed, it did nor plan to adjust the quota, which promoted the growth of oil reserves in developed countries, as well as further decline in prices.

The situation on the international stock markets was markedly improved in May (see Table 1). Most of countries stock indices in May were displaying positive growth rates.

As the month began, a growth in quotations was registered at the US share market. At the same time, any substantial growth in quotations was impeded by the high, though declining, oil prices, by raised interest rates and by slowing-down rates of economic growth. The Open Market Committee of the USA Federal Reserve System once more raised the interest rate by 0.25% - to 3% per annum. This news had no significant impact on the market, because this event has already been reflected by the prices, while investors are more interested in the standpoints of the monetary authorities as to any further rise in the interest rates. The economic statistical data were controversial. Thus, despite the continuing decline in activity indices in industry and the services sector, the indices of productivity, construction costs and employment turned out to be much better than had been expected in the economy.

Toward mid-May, the indices dynamics was rather multidirectional. Liquidity problems being experienced by some hedge funds and accelerating inflation rate became negative factors that were increasing the probability of a more aggressive policy of raising interest rates in future. The quotations were positively influenced by the dramatic fall in the international oil prices, as well as by the still low yields on government bonds. Later on, market growth continued due to a favorable combination of several factors the oil quotations were still going down, while the released economic statistics decreased the probability of any future accelerated increase in the interest rates. FIG. 6.

120% Dow Jones Industrial Average NASDAQ Composite The RTS Index 110% 100% 90% 80% 70% 60% On the whole, while analyzing the effect of external factors on the Russian share market, it should be noted that in the situation when no significant domestic news appear, external factors begin to play an important role in respect to the dynamics of Russian companies quotations. In particular, the fall in the international oil prices, in absence of any external news, contributed to the downward trend on the Russian market. At the same time, the favorable situation on the international capital markets, as well as the reestablishment of the previous level of oil quotations in late May, were serving as factors supporting the domestic share market.

Corporate news Open-End Joint-Stock Company LUKoil According to the information released by the companys press center, the volume of the OJSC LUKoils securities being traded on the London Stock Exchange (LSE) in April 2005 amounted to $ 2.66 billion, which became a record high achieved from the moment when the trading in the companys securities on the LSE had started in 2002. The companys shares are remaining the most liquid on the LSE among the securities of all the issuers from the countries of Central and Eastern Europe.

The total volume of trading in these issuers securities in April 2005 was $ 6,5 billion, of which depositary receipts for the OJSC LUKoils shares constituted 42.6%.

On 25 May the company submitted its financial reports of the year 2004 prepared in accordance with the universally established accounting principles (US GAAP). Thus, the net profit in amounted to $ 4,248 million, which was by $ 1,862 million more than in the same period of the previous year (without the accumulated effect of changes in the accounting practice, lumpsum revenue and expenditure items, and the proceeds from the sale of the stake in the Azeri-Chirag-Guneshli project, in a total of $ 1,315 million). The amount of taxes (without the profits tax) paid to the RF budget amounted to $ 3,424 million, which is almost by 44% more than in the year 2003. The growth in net profit occurred due to the favorable level of prices and a better management of expenditures. At the same time, profit growth was hindered by the growing tax burden, the roubles consolidation and the continually increasing transport costs.

Open-End Joint-Stock Company Rostelecom In May the company published the financial results of its activity in the first quarter of 2005. Thus, according to the data presented, the OJSC Rostelecoms proceeds in the first quarter of amounted to 9,579.1 million roubles, having increased, as compared to the same period in 2004, 8.4%; the EBITDA undex grew by 1.5%, to 3 815.3 million roubles, and EBITDA profitability was 39.8%. The companys net profit in the first quarter of 2005 was 2,411.4 million roubles, as compared to 2,809.8 million roubles in the same period in 2004. Without the effect of reestimating financial investments, net profit growth, as compared to the first quarter of 2004 amounted to 13.8%.

Open-End Joint-Stock Company Yukos On 24 May the company published a press release, informing on the completion of the process of its organizational and financial restructuring designed to ensure an uninterrupted production activity and the fulfillment of the companys obligations to its employees, partners, creditors and shareholders. The managing company of the NK Yukos the Limited Liability Company Yukos - Moskva was liquidated, and its staff transferred to the Closed Joint-Stock Company Yukos RM. The NK Yukos, which is producing daily over 600,000 barrels of oil and one-fifth of all Russias oil products, is to be reorganized into two divisions. The first one, Yukos EP, is to engage in research and extraction. The second, Yukos RM, is to process and sell the Yukos EPs products. Both the Yukos EP and Yukos RM are to be governed by boards of directors.

Table 1.

Dynamics of international stock indices Monthly change Change since Data as of 27 May 2005 Index (%)11 years beginning (%) 671.40 -0.55% 10.51% RTS (Russia) 10542.55 3.37% 1.74% Dow Jones Industrial Average (USA) 2075.73 7.53% 3.55% NASDAQ Composite (USA) 1198.78 3.67% 0.27% S&P 500 (USA) 4986.30 4.11% 2.87% FTSE 100 (UK) 4444.71 6.10% 3.57% DAX-30 (Germany) 4131.83 5.20% 7.16% CAC-40 (France) 6160.80 5.48% 6.80% Swiss Market (Switzerland) 11192.33 1.70% -2.83% Nikkei-225 (Japan) 24478.00 -3.03% 4.84% Bovespa (Brazil) 13131.39 5.43% 0.83% IPC (Mexico) 1951.01 0.06% 8.64% IPSA (Chile) 2154.70 0.44% 4.08% Straits Times (Singapore) 960.91 3.31% 7.52% Seoul Composite (South Korea) 24453.14 1.59% -3.90% ISE National-100 (Turkey) 550.53 2.41% 1.53% Morgan Stanley Emerging Markets Free Index The foreign currency market The dynamics of the roubles quotations on the foreign currency market in May was displaying a generally downward trend. The noticed fluctuations occurred in response to the changes in the quotations on the international currency market FOREX. After the holidays the rouble/dollar exchange rate began to go down as the dollars position on the international market was strengthening. Toward the months end the decreased liquidity in the banking sector became one more factor which was influencing the changes in the dollar exchange rate.

Between 4 and 28 May, the dollar exchange rate grew by 0.25 roubles (0.88%) and amounted to 28.08 roubles per 1 USD. The aggregate volume of trading in the USA currency in the Electronic In relation to the levels on 27 April.

Trading System (SELT) in the period from 4 through 27 May was about $ 21.6 billion, the daily turnover being at the level of $1.27 billion (about $ 1.48 billion in April). The maximum USD trading volume in that period was recorded on 24 May in the amount of $ 2.61 billion, the minimum volume of $ 835.9 million - on 5 May.

The rouble-denominated liquidity in the banking sector this year in May was somewhat lower than in April: the average residuals on credit institutions corresponding accounts with the Bank of Russia in May was about 248.3 billion roubles, against 265.3 billion roubles in April.

FIG. 7.

Dynamics of the Official USD/RUR and EUR/RUR Exchange Rates in 2004-40.Official USD/RUR exchange rate 39.Official EUR/RUR exchange rate 8.

Dynamics of the Dollar/Euro Exchange Rate on the International Markets the international market the US dollars position was becoming stronger. The growth in its exchange rate on the international market was promoted by the information as to the lowered deficit of roubles USAs balance of trade and a considerable growth in its retail sales. The noticeable fall in the international oil prices was also contributing to the strengthening of the US dollars position.

From 1 through 28 May, the euros exchange rate on the international market went down by $ 0.(2.29%), to 1.2582 USD per 1 euro. Against this background, a weakening euro/rouble exchange rate was also noticed. In the period from 4 through 28 May, euro/rouble exchange rate went down by 0.roubles (1.62%), from 35.76 to 35.18 roubles per 1 euro. The aggregate volume of trading in euro on the SELT from 4 through 27 May was about 136.36 million euro, the average daily index being at the level of 8.02 million euro (about 7.58 million euro in April). These indices are somewhat higher than those same were in April. The maximum volume trade in euro in that period of time was recorded on 19 May in the amount of 11.36 million euro, the minimum volume of 5.41 million euro - on 26 May.

Table Indices of financial markets Month January February March April May* monthly inflation 2.6% 1.2% 1.3% 1.1% 0.8% estimated annual inflation, based on this months 36.07% 15.39% 16.77% 14.03% 10.0% trend RF CBs refinancing rate 13% 13% 13% 13% 13% average yield to maturity, all OFZ issues (% per 7.17% 7.08% 7.32% annum) GKO-OFZ monthly market turnover (billion rou- 25.07 18.31 23.bles) Minfin binds yield to maturity as of months end (% per annum):

Tranche 5 5.07% 5.17% 5.77% 5.39% 5.2% Tranche 6 4.22% 4.99% 4.45% 4.26% 4.2% Tranche 7 5.75% 5.75% 6.19% 5.87% 5.7% Tranche 8 4.47% 4.53% 4.65% 4.69% 4.5% Eurobonds yield to maturity as of months end (% per annum):

2005 3.46% 3.49% 3.61% 3.39% 3.4% 2007 4.45% 4.43% 5.23% 4.68% 4.5% 2010 5.18% 5.77% 6.26% 5.72% 5.6% 2018 6.32% 6.19% 6.74% 6.26% 6.0% 2028 6.94% 6.82% 7.24% 6.76% 6.4% 2030 6.09% 6.07% 6.51% 6.03% 5.7% MBK-MIACRs one-day credit rate (%per annum 1.76% 0.94% 1.49% 5.54% 5.0% as of months end) official RUR/USD exchange rate as of months 28.0845 27.7738 27.8256 27.7726 28.end (rouble/dollar) official RUR/EUR exchange rate as of months 36.625 36.6281 36.0564 36.0072 35.end (rouble/euro) monthly growth in official RUR/USD exchange 1.21% -1.11% 0.19% -0.19% 1.15% rate (%) monthly growth in official RUR/ EUR exchange -3.14% 0.01% -1.56% -0.14% -2.25% rate (%) monthly stock market turnover on RTS (million 166.72 416.70 363.30 347.72 USD, on shares listed for estimating RTS Index RTS-1 Index as of months end 640.41 716.59 669.42 670.36 670.monthly change in RTS-1 Index (%) 4.28% 11.90 -6.58% 0.14% 0% * As estimated.

D. Polevoi The Impact of New Primary Listing Requirements Issued by the Russian Federal Financial Market Service for Securities Intended for Pension Accruals Investment Since 1 July 2005, the Russian Federal Financial Market Service ( RFFMS ) made amendments to the stock exchange listing requirements for securities12, whereby a series of important quantitative parameters were revised upwards. These changes have a direct impact on pension accruals investment, since the applicable rules and regulations specify that pension accruals only can be invested in securities included into the primary listings (1 ). Below presented is an explicit examination of the amendments to the requirements for issuers and securities which are intended to be included into such listings ( see Table 1).

Table Comparison of RFFMSs Requirements for Including Shares and Bonds into 1 Primary Listings* Parameters Before 1 July 2005 After 1 July Number of shareholders of an economic entity and open joint stock not less than 1000 - company Economic societys net asset worth not less than 500 RUR - million A share of common shares held by an individual and ( or ) its affili- not more than 75% not more than 75% ated persons Common shares capitalization not less than 300 RUR not less than 10 RUR billion million Preferred shares capitalization - not less than 3 RUR billion Securities convertible into common shares - not earlier than common shares Issuance volume of subfederal, municipal or corporate bonds not less than 30 RUR not less than 1 RUR billion million Shares transaction volume monthly average, over the monthly, over the last 3 months last 6 months - - not less than 25 RUR million not less than 2 RUR million Transaction volume of subfederal, municipal or corporate bonds Monthly average, over the Monthly, over the last last 6 months - not less months - than 400 RUR thousand not less than 10 RUR million Minimal issuer lifetime - 3 years Absence of losses by year end 2 of the last 3 years or 2 of the last 3 years over the entire lifetime * Not to be applied to securities issued on behalf of the Russian Federation.

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