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Monetary factors, as usual during last years, are related to the foreign exchange market. The foreign reserves of the Russian Central Bank continued growing (see Fig. 2). Being $42.2 billion in the end of May, the reserves grew up to the new historical maximum $43.1 billion by June 21. Thus, the supply of foreign exchange dominated in the market. It is worth noting that according to the CBRs preliminary estimates, in the second quarter of 2002 the capital account of the Russian balance of payment is going to be positive.

% a week 1-7.4.8-14.4.3-9.6.4-10.2.4-10.3.15-21.4.6-12.5.7-13.01.11-17.2.18-24.2.11-17.3.18-24.3.25-31.3.22-28.4.13-19.5.20-26.5.10-16.6.25.2-3.3.29.4-5.5.27.5-2.6.14-20.01.21-27.01.28.01-3.02.31.12.01-6.1.bln. dollars bln. rubles 1-7.4.8-14.4.3-9.6.4-10.2.4-10.3.15-21.4.6-12.5.7-13.01.11-17.2.18-24.2.11-17.3.18-24.3.25-31.3.22-28.4.13-19.5.20-26.5.10-16.6.17-23.6.25.2-3.3.29.4-5.5.27.5-2.6.14-20.01.21-27.01.28.01-3.02.31.12.01-6.1.Correspondingly, the growth of monetary base also continued (see Fig. 2). Thus, in May 2002 the reserve money grew by 60 billion roubles (from 917.7 billion to 977.7 billion), or by more than 6.5%. The growth was mainly due to balances on correspondent (+29.3 billion roubles) and deposit accounts (+34.3 billion roubles) of commercial banks.

Among non-monetary factors, in addition to petroleum prices, we should mention the regular Government decision (20.06.2002) on increase in tariffs on production of natural monopolists. In July 2002 the tariffs on gas will be increased by 15%. The tariffs on electricity (in the Federal Wholesale Electricity Market) will be increased by 2.4%, on freight service by 6.8%. The Government also adopted reference points for increase in tariffs in 2003. It is assumed that their growth will overtake the planned inflation rate. The highest increase falls on gas up to 20%.

In late June the Bank of Russia published data on dynamics of M2 including Mays figure, which testified the tendency to a growth of real money balances held on (see Fig. 3). By the very beginning of June 2002 the M2 (deflated by CPI) reached the level of 115% against December 1997. It is worth noting that during seven months running the real money balances grew at the expense of rising balances on individuals accounts in banks as balances on firms accounts fluctuated around the level of 140% against December 1997. By end of May 2002 deposits of individuals in real terms got the level of 95% against December 1997 and grew by 9.5% for five months.

FIGURE 3.

160 Real M2 (December 1997 = 100) Real balances on ruble accounts of enterprises (December 1997 = 100) Real balances on people's accounts in commercial banks (December 1997 = 100) S. Drobyshevsky.

Financial Markets The market for government securities.

In the market for the Russian foreign debt in June 2002 one could see a fall in quotations of securities (see Figs. 1 and 2) caused, first of all, by development of situation in Brazil. The threat of default on the Brazilian foreign debt, assuming Brazil is the largest issuer of debt liabilities, stipulated for re-estimation of investment risks in emerging markets. Hence, the rise of yields affected the Russian securities as well despite clear positive signs from Russia (growth of foreign reserves and acknowledgement of Russia as a market-economy country by the European Union). Namely, in the second half of June yields on Minfin bonds and eurobonds (across all terms of maturity) grew by about one percentage point.

Jun Jun Jun Jun Oct Oct Oct Oct Feb Feb Feb Feb Feb Apr Apr Apr Apr Apr Dec Dec Dec Dec Dec Aug Aug Aug Aug 01.03.01.03.06.03.06.03.12.03.12.03.15.03.15.03.20.03.20.03.25.03.25.03.28.03.28.03.03.04.02 03.04.08.04.02 08.04.11.04.11.04.16.04.16.04.19.04.19.04.24.04.24.04.29.04.29.04.08.05.08.05.15.05.15.05.20.05.20.05.23.05.23.05.28.05.28.05.31.05.31.05.07.06.07.06.13.06.13.06.18.06.18.06.21.06.21.06.F IGURE 2.

F IGURE 1.

10,0% 10,5% 11,0% 11,5% 10,0% 10,5% 11,0% 11,5% 5,5% 6,0% 6,5% 7,0% 7,5% 8,0% 8,5% 9,0% 9,5% 4,0% 4,5% 5,0% 5,5% 6,0% 6,5% 7,0% 7,5% 8,0% 8,5% 9,0% 9,5% Tranche Tranche Tranche Tranche Minfin bonds' yields to maturity in March through June Yields to maturity of the Russian eurobonds with maturity in 2003, 2007 and 2028 in March through June USD-USD-USD-The market for corporate securities.

The situation in the market. In early summer the Russian stock market, which had resisted to negative external factors during a long time, surrendered. Unfavorable development of the US stock indices, the next crisis in Latin America stipulated for a fall in the RTS to Aprils level. However, we should point out that there was no fundamentals for a deterioration of situation in the Russian stock market: the main macroeconomic indicators demonstrate positive dynamics. Taking into account seasonal decline in investors activity, one can hope for a growth of stock prices in the nearest future.

In June the RTS Index dropped by 37.58 points (-9.58%); the trade volume fell by more than $100 million (-24.18%) against the previous period and made up $344.3 million. The average daily turnover equaled $18.million. In the first decade of the month the RTS Index was rather stable: its variation was equal to 12.points (3.2%). On June 10 the stock index reached the maximum value in the month 396.7. After that the Index fell sharply at high trade volumes. As early as on June 14 the Index slid to 378.65 (-3.17%), while the trade volume amounted to $23 million; from June 18 to 21 the RTS Index dropped by more than 6% at the total trade volume of $116.13 million (one third of the monthly turnover). The negative dynamics was mainly caused by news from South America. By the way, it is worth noting that the turnovers on the MICEX did not change so rapidly, i.e. the bearish tendency was induced by non-residents. On June 26 the RTS Index slid further to 335.89 points, but by the end of month the stock quotations grew once again and the Index was fixed at the level of 353.79 points. The rise in late-June was caused by an increase in major stock indices and positive dynamics of oil prices and favorable corporate news.

FIGURE 3.

The total volume of trading ($) The RTS Index In June the leaders among blue chips were Sberbank (1.62%) and Sibneft (1.58%). The prices of Gazprom were those which declined to a minor degree (-5.44%). They were followed by stocks of Tatneft (-7.2%), LUKoil (-7.34%) and YUKOS (-7.37%). The list was closed with Rostelecom (14.84%) and RAO UES Russia (-24.8%). Among the second echelon the leaders were stocks of TH TsUM (+21.67%) and Rosneft-Purneftegaz (+11.11%). The leader of the previous month dropped at most in June (-30.6%).

points mln US dollars 03.05.01.06.02.07.30.07.27.08.24.09.22.10.20.11.19.12.21.01.18.02.20.05.20.03.17.04.18.06.FIGURE 4.

Dynamics of the Russian Blue Chips between May 31 to June 28, 5% 0% -5% -10% -15% -20% -25% -30% Change in price (%) In June, the share of common stocks of RAO UES Russia in the total RTS turnover slid to 26.1% (in May 27.13%), the share of YUKOS grew up to 16.49% (10%), while the share of LUKoil stocks dropped to 16.48% (21.31%), the share of Surgutneftegas was 14.41% (13.4%) and Tatneft - 6.24% (6.54%). Overall in June the total share of the five most liquid stocks in RTS rose up to 79.73% (in June 78.38%).

Between June 3 to June 28, 2002, the trade volume with Gazprom stocks via RTS terminals exceeded $133 million (more than 135 million shares). Overall 11 thousand deals were struck.

In June the list of top five biggest Russian corporations by capitalisation did not change (according to the RTS data): Gazprom $23.1 billion, YUKOS $20.6 billion, Surgutneftegaz $13.9 billion, LUKoil $13.8 billion and Sibneft $8.5 billion.

On June 18 the RTS added the common and preferred shares of Surgutneftegaz to the list of the second level. Thus, the total share of securities listed in the RTS amounted to 35 (7 in the list of the first level and 28 in the list of the second level).

Between June 3 to June 21 the turnover in the FORTS equaled 5.6 billion rubles (29.3 thousand deals, 1.14 million contracts). The execution day on June 2002 term contracts in the RTS was on June 17. After the June contracts were executed, now in the market there are traded standard contracts with execution in September and December 2002.

The trade volume in the secondary corporate bond market (MICEX) rose against May and made up about 2.92 billion rubles. The share of TNK bonds (5th issue, 1st tranche) equaled 22.7%, TNK (4th issue, 1st tranche) 12.24%, CSFB (2nd issue) 10.02%, RITEK (3rd issue, 1st tranche) 6.49% and Slavneft (2nd issue) 5.47%. The overall share of five the most liquid bonds in the MICEX turnover amounted to 56.92%.

Among initial offerings we should note bonds of Alfa-finance (one billion rubles).

External factors having impact on the Russian stock market. The US administration officially claimed that Russia would get the status of a country with market economy. The respective decision was adopted by the US Ministry of Trade. The US Minister of Trade D. Evans said the acknowledgement reflects huge economic changes which went in Russia during last decade. The acknowledgement of Russia as a marketeconomy country means that Russia gets equal rights in trade discussions with the main trade partners of the USA. Earlier similar decision was adopted by the EC officials. The European Community also supports Russias accession to the WTO and its participation on equal principals in other international organizations.

In June the US stock markets fell down: the DJIA lost 798.43 points (8.04%), and NASDAQ 191.points (-11.87%). Primarily, the fall is attributed to unfavorable news on financial results of the US corporations.

l t s s o il ft f ia ia m o o e s o om ike ss ne n k K erg ega t u us b t pr Uk n U rN z R e ef Si Ta ele o L s t f n S R s Ga o E ut Mo K N Ro rg nk U a u O S rb GM A e R Sb On the regular meeting in June the Fed decided to leave the Federal Funds rate unchanged at the level of 1.75%.

The international rating agency Moodys reported Russias rating had a positive long-term trend and the agency did not exclude its upgrade during next 18 months. Another biggest rating agency Standard & Poor's stated that it also can revise the long-term rating of Russia during next three months. In February 2002 the agency gave a positive forecast on Russias rating, i.e. assuming possible revision of the rating during next six to thirty-six months.

FIGURE 5.

Dow Jones Industrial Average 240% Nasdaq Composite 220% The RTS Index 200% 180% 160% 140% 120% 100% 80% 60% FIGURE 6.

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 17.05.02 20.06. dollars per barrel.

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The first month of the summer began with a fall in oil prices. By June 11 the price of Brent dropped to a two-month minimum 22.62 $/bbl. The dynamics can be explained by a decline in demand for fuel from the US consumers and independent oil-producers refusal to impose export restrictions. However by the end of the month the oil price exceeded the level of 25 $/bbl once again. This fact was facilitated by the news from Norway about strikes in the oil company and possible stoppage of oil export as well as by unpredicted reduction in the US oil reserves.

At the OPEC summit on June 26 the oil ministers came to a conclusion on keeping the current level of oil production.

Corporate news.

MMC Norilsky Nickel. The press-cutting service of the MMC Norilsky Nickel reported the Board of Directors decided on dividends recommended for approval at the shareholders meeting. Starting from this year, the dividend are supposed to amount to 20-25% of net consolidated profit, calculated according to the international accounting standards.

By June 15, 2002, the MMC Norilsky Nickel finished the purchase of 38,761,525 common shares of the company. The shares were purchased between May 15 to June 15, 2002, according to the decision of the shareholders meeting (as of March 29, 2002) aimed at reduction in the charter capital and removal of crossshareholding between RAO Norilsky Nickel and MMC Norilsky Nickel.

Mosenergo. The international rating agency Standard & Poor's confirmed the long-term rating of Mosenergo at - level (forecast stable) basing on analysis of operational and financial results for 2001 as well as taking into account prospects for development of the Russian energy sector.

TABLE 1.DYNAMICS OF THE FOREIGN STOCK INDEXES as of June, 2002 value change for last change since beginning of month (%) the year (%) RTS (Russia) 345,44 -11,71% 32,84% Dow Jones Industrial Average (USA) 9126,82 -8,04% -9,97% Nasdaq Composite (USA) 1423,99 -11,87% -28,34% S&P 500 (USA) 976,14 -8,53% -15,92% FTSE 100 (UK) 4631 -8,93% -11,66% DAX-30 (Germany) 4202,97 -12,77% -18,55% CAC-40 (France) 3766,4 -11,89% -18,56% Swiss Market (Switzerland) 5781,4 -12,07% -9,92% Nikkei-225 (Japan) 10496,67 -10,77% -0,44% Bovespa (Brazil) 10706 -16,76% -21,15% IPC (Mexico) 6354,26 -9,63% -1,74% IPSA (Chile) 88,82 -4,44% -18,59% Straits Times (Singapore) 1565,8 -6,34% -3,70% Seoul Composite(Korea) 755,92 -5,08% 8,97% ISE National-100 (Turkey) 9094,77 -12,67% -34,01% Morgan Stanley Emerging Markets Index 320,681 -7,39% 1,03% Despite substantial improvements in Mosenergos financial state during last two years (the receipts grew by more than 1.5 times in US dollar terms, the accounts payable and receivable went down, barter near vanished, the company is more likely to pay off eurobonds this autumn), the upgrade was restrained by susceptibility of the company to politically-oriented system of tariff setting and uncertainty due to energy sector restructuring.

Mosenergo reported its results for 2001 according to GAAP. The consolidated net profit made up $million against the loss of $3 million in 2000. The sales rose up to $1.487 billion against $1.087 billion in 2000. The operational profit in 2001 amounted to $140 million, and net profit per share equaled $0.against the loss of $0.0001 in 2000.

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