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As concerns the metallurgy complex, at the background of falling investment in nonferrous metallurgy by 0.5 p. p. the specific weight of ferrous metallurgy increased by 1.1 p. p. A negative feature of changes in the structure of investment in industry is the low investment activity observed across the branches of manufacturing industry. An insignificant amount of investment in industries producing final goods at the background of the current age structure of fixed assets and their physical depreciation and moral obsolescence is insufficient for pursuit of an efficient structural policy and renewal of fixed assets. The specific weight of food industry in the total investment in fixed assets in the 1st quarter of 2004 made 2.7 per cent, what is by almost 2 p. p. below the figures registered in the respective period of the preceding year. As concerns light industry and mechanical engineering, in these industries the share of investment remained at the levels observed in the 1st quarter of 2003.

Food industry Light industry Construction materials Forestry Mechanical engineering Chemistry Nonferrous metallurgy Ferrous metallurgy Coal industry Natural gas industry Oil processing industry Oil extracting industry Fuel industry Electrical power engineering -12 -10 -8 -6 -4 -2 0 2 4 2003 Fig. 1. Changes in the structure of investment in fixed assets across industries in the 1st quarter of 2003 through 2004 in comparison with the figures registered in the respective quarter of the preceding year, in % As concerns the technological structure of investment, there persisted the trend towards an increase in the share of machinery and equipment. In comparison with the figures registered in the 1st quarter of 2003, the share of machinery and equipment in the structure of investment in fixed assets increased by 2.4 p. p. and made 34.7 per cent. The domestic mechanical engineering was not adequate to the growing investment demand both in terms of the amount and the structure of supply of capital goods. In the 1st quarter of 2004, investment in purchase of foreign equipment made 23.5 per cent of the total amount of investment in machinery, equipment, and transport vehicles.

By the end of the 1st quarter of 2004, the share of investment in fixed assets made 11.4 per cent of GDP and remained at about the level registered in the preceding year. In the situation characterized by the exceptionally favorable business situation on the world market of raw materials, dynamic increase in proceeds of exporters, as well as growing profitability of production of domestic goods and services due to an increase in the respective volumes of output, expansion of zones of profitable production and decline in the tax burden caused by the current tax reforms there might be expected higher indicators.

O. I. Izryadnova Choice of instruments meant for investing pension savings funds In April management companies, which successfully passed competition for singing agreements of trust management of pension savings funds, started investing the funds transferred to them by the Pension Fund of Russia according to applications submitted by insured people.

Aggregate structure of the investment portfolios of private management companies by the end of May is given in Graph 1. According to the data as of May 25, management companies invested in state bonds 78.3 percent of personal savings transferred to them. In shares of Russian companies they invested 0.53 percent, in securities issued by subjects of the Federation they invested 0.5 percent, in corporate bonds0.57 percent. In cash assets and on deposits there are 12.9 percent of the amount of pension savings including 9.67 percent are in rubles, 3.01 percentin foreign currency. Still 7.14 percent are in other assets.

state bonds 7,shares 3,01 subfederal bonds corporate bonds ruble deposits 9,deposits in currency other assets 0,0,0,78,Source: New Izvestia 31.05.Graph. 1 Investment of pension savings funds by management companies as of 25 May In such a way the share of corporate bonds and shares is considerably lower maximum allowed level.

Of course, negative situation on the securities market (see Graph 2 and 3) resulted in a cautious behavior of management companies regarding these instruments. At the beginning of April the marker looked overheated and then recession began, which continued in May. Blue chips and the most liquid issues of corporate bonds and subfederal bonds suffered the biggest fall. A low level of ruble liquidity recorded in the banking system negatively influenced the price dynamics on the stock market.

The shortage of ruble liquidity was a result of reduction of balances on correspondent accounts and high rates of inter-bank loans.

1 - RusIndex Titans 10 (USD) (left axis) 2 - Index RTS (USD) (right axis) Sources: www.rts.ru, www.djindexes.com Graph 2. Dynamics of dollar RTS indicators and RusIndex Titans Source: www.micex.ru Graph 3. Dynamics of indicator of corporate bonds on MICEX In the countries that have long traditions of collective investment pension funds as well as investment funds in such situations pay stabilizing role because their investment horizons are oriented for long-term perspective. For example, in the United States in 1980sthe beginning of 1990s when physical persons actively soled shares and net purchases of the households recorded negative index, net purchases of the pension funds during the whole period recorded positive indices and had a leveling influence on the overall dynamics of the stock market. (see Graph 4).

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housholds pension funds total -------1980 1982 1984 1986 1988 1990 1991 Source: Federal Reserve Bulletin, November Graph 4. Net purchases of shares in US in 1980-Russian management companies so far are more market oriented, which to a certain extent is provoked by the proper model of the savings pension system, according to which once a year insured person can transfer his savings to another management company or private pension fund and uncertainty of the future of these funds in view of announced by the Government measures on financing forecasted deficit of Pension fund of Russia. Overall amount of funds transferred to private management companies could not significantly influence the dynamics of market indicators. Overall volume of shares auction at the stock exchange of RTS and MICEX amounted to 353.4 billion rubles in April and 211.5 billion rubles in May (data published by MICEX and RTS). In that way the sum of pension savings transferred to the management companies in the volume of 1.6 billion rubles even been totally invested in shares in April would have constituted 0.4 percent of the turnover. In May this indicator would have constituted 0.7 percent of the overall auction volume.

Resolution of the Government of RF 379 dates 30.06.200310 determines that not more than percent of pension savings can be invested in shares. Due to this fact indicators fall by more than half.

Similar situation is being formed with regard to bonds. In April 2004 overall bond auction volume at MICEX and RTS amounted to 15.4 billion rubles out of which 6.2 billion rubles were in corporate bonds, 9.1 billion rubles were in subfederal bonds and 0.1 billion rubles were in municipal bonds. In May 2004 overall volume of bond auction at MICEX and RTS amounted to 8.2 billion rubles out of which 2.3 billion rubles were in corporate bonds, 5.8 billion rubles were in subfederal bonds and 0.billion rubles were in municipal bonds. Thus, parting from a premise that private management companies would have placed in bonds maximum allowed volume of pension savings (50 percent), then they would have constituted in April 2004 the amount of 5.2 percent and in May 9.8 percent. Because the chance for investing pension savings funds in maximum limits is small then shares of pension savings in the volume of shares and binds auction will be less and they will not significantly influence shares and corporate bond markets.

At the same time, the analysis of publications related to the initial stage of investing pension savings by private management companies by far not all of them turned out to be ready to work in the new segment of the market. For example, part of the management companies confronted the problem of independent selection of instruments for investment taking into consideration the restrictions established by the Federal Law "On investing funds for financing the savings component of the retirement pension in the Russian Federation, investment declaration and additional quantitative restrictions for the issuers of bonds fixed by the Government Resolution N379. First of all, this is related to issues of information backup of investment in securities issued by private issuers.

Some of the requirements formulated to securities for the investment of pension savings funds and mentioned in the above-cited Resolution do not seem to be successful. As management companies note11 selection of securities is very time and labor consuming.

According to the Resolution investment of pension savings funds that are in the trust of management companies into shares is restricted by those issuers whose shares are listed in exchange quotations. Market value of shares must amount to no less than 300 million rubles, value of net assets of the issuers of securities must amount in case of shares to no less than 500 million rubles, average monthly amount of market transactions with stock of OAO (open-end joint-stock company) calculated as of last six months must constitute no less than 2 million rubles. Besides the issuer must have no less than 1000 shareholders and record no losses as minimum during last two years.

Several issues appear, which are not dealt by the Government Resolution N379. For example, how frequently should management companies keep recording the compliance of the issuers, whose shares they have purchased into their portfolios, with set forth requirements. Also information about the value of net assets is not freely accessible and its evaluation is difficult for management companies. Besides this, the process of collecting such necessary information on issuers, in whose shares private management companies place pension savings, as the number of shareholders, frequency of publication and accounting composition is rather labor consuming.

On the whole, requirements set forth in the Government Resolution N379 are very close to the requirements given for including securities into quotation listing A of the first level. For example, according to Resolution of the Federal Securities Commission dated 4 January 2002 N1-ps On adopt Furthermore, the Ministry of finance of RF issued order 27 dated 5 March 2004 . On determining criteria for placement of pension savings funds into assets indicated in subparagraph 2-4 and b paragraph 1 Article of the Federal law dated 24 July 2004 N 111-FZ "On investing funds for financing the savings component of the retirement pension in the Russian Federation, however it does not contain additions to the requirements mentioned in Government Resolution See: Delovoy Peterburg. 9.04.2004, Vedomosty 2.04.ing provision on requirements put to the organizers of auction at the securities market12, market value of shares must constitute no less than 300 million rubles, value of net assets of the issuer of the securities must constitute in case of shares no less than 500 million rubles, calculated as of last six months average monthly amount of transactions with securities must be no less than 2 million rubles in case of shares. List of shares, which are allowed for the investment of pension funds can be wider than the quotation listing A of fist level because the issuer can comply with the requirements set for the quotation listing A of first level but not be in the list. Among shares that got into this category according to the lists compiled by management companies on the basis of their own analytical research are shares of major companies, such as Aeroflot, Norilskiy nickel, Severstal, Sibirtelecom, Surgutneftegaz. Cumulative capitalization of these issuers as of March 31 amounted to about 53 billion dollars. On the other hand, ordinary shares of Stoilenskiy GOK are in the quotation listing A of the first level in MICEX, however, the volume of their trading is below the fixed average monthly volume of market transactions with OAO as it is determined by the Government Resolution N379. However, they are not taken out of listing.

According to our estimates, as of March 31, 2004 capitalization of the issuers, whose shares are allowed for the investment of pension savings funds, amounted to 208 billion US dollars, which represented about 83 percent of the aggregate capitalization (according to data Red-Stars/Financial, capitalization of Russian issuers as of March 30 constituted 250.2 billion US dollars). Overall volume of stock trading listed in the quotation listing A of first level for five months of 2004 amounted to percent of the total volume of stock trading at MICES for this period.

Requirements contained in the Government Resolution N379 regarding bonds coincide with the requirements designed for including bonds in quotation listing A of first level according to the Federal Securities Commission Resolution N1-ps. For example, market value of bonds, which are allowed for the investment of pension savings funds, must constitute no less than 30 million rubles. Average monthly volume of market transactions with state bonds of the subject of RF, municipal bonds and bonds of Russian economic entities calculated as of last six months is no less than 400 thousand rubles.

At MICEX bonds of nine issuers were part of quotation listing A of first level as of the beginning of April. However, the volume of bond trading of OAO MMK, which are included in the highest listing does not satisfy restriction determined by the Government Resolution N379 for the average amount of transactions with bonds of Russian economic entities. Aggregate volume of circulating issues of corporate bonds, into which private management companies can place part of pension savings funds, constituted, according to our estimate, by the end of the first quarter 2004 about 14 percent of the overall volume of corporate bonds in circulation at face-value. Volume of trading in JanuaryMarch of these issues at MICEX constituted about 30 percent of the cumulative volume of secondary trading in the segment of corporate bonds at MICEX.Subfederal and municipal bonds are traded mainly in two stock exchangesMICEX and StPCEX.

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