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Tidi. The most significant growth was demonstrated by the shares of Rostelekom and RAO EES of Russia in response to the progress of the reform in electric energy and adoption of the amendments to the Federal Law On Communications.


In general, in the period between July 3 and 26, 2006, the RTS index fell by 0.04% to reach 511,points, which is 0.64 points in absolute figures. Trading turnover of the RTS index shares totaled nearly $524.06 ml US dollars with an average weighted turnover of $29.11 ml US dollars in the same period ( as opposed to about $861.46 billion US dollars with an average daily turnover of $41.02 ml US dollars in June ). Hence investors were less active in the stock market in June, their activity kept falling due a holiday season, during which trading activity normally falls. In July, maximum and minimum trading turnover figures totaled $53.5 ml US dollars ( on July 20, 2006 ) and $11.56 ml US dollars ( on July 21, 2006 ) respectively.

Most of the liquid shares in the Russian market showed upward movements according to the results at the end of the month (in the period between June 27 and July 26 ). The OAO Tatnefts shares were ranked second to none by growth by the end of the month, 38.89%. They were followed by Norilsky Nickel ( 15.63% ), Rostelekom ( 14.59% ), Surguneftegaz ( 13.85% ), Sberbank of Russia ( 6.83% ), RAO EES of Russia ( 2.69% ) and Gazprom (2.56%). Most negative trend was represented by YUKOS shares, which lost at once 44.44% of the value due to the initiation of bankruptcy procedure..

Figure 160 1 800.150 1 725.The total volume of trading ($) 140 1 650.The RTS Index 130 1 575.120 1 500.110 1 425.100 1 350.90 1 275.80 1 200.70 1 125.60 1 050.50 975.40 900.30 825.20 750.10 675.600.Figure Dynamics of the Russian Blue Chips from June 27 to July 26, 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% -50.0% Change in price (%) points mln US dollars s Tatneft Sibneft GMK LUKoil Russia Gazprom Russia NorNikel RAO UES Mosenergo Rostelekom Sberbank of Surgutneftegas In July, a group of leaders in terms of turnover in the RTS6 was composed of the companies as follows: Gazprom ( 20.4% ), RAO EES of Russia ( 18.7% ), Lukoil ( 15.3% ),. In addition, shares of Norilsky Nikel, Sberbank of Russia and Rosneft were also ranked among the leaders in terms of turnover in the RTS according to the results of week trading within the month..

The top-five list of leaders in terms of capitalization is as follows 7 according to the data as of July 26, 20068: Gazprom $237.93 billion US dollars, Lukoil $71.32 billion US dollars, Surgutneftegaz $52.9 billion US dollars, Sberbank of Russia $33.82 billion US dollars, RAO EES of Russia $28.9 billion US dollars, and Norilsky Nikel $24.34 billion US dollars.

Futures market. Investment activity at the RTS ( FORTS ) futures market kept falling. Total turnover in the RTS futures and option market accounted for nearly Rb 169.3 billion ( 335.78 thousand transactions and 5.33 million contracts ) in the period between June 1 and 27, 2006 as opposed to Rb 200.72 billion ( 404.88 thousand transactions and 7.16 million contracts ) in June.

Futures, as previously, were in the largest demand among market participants: the futures market turnover over the period under review accounted for Rb 159.89 billion ( 329,68 thousand transactions and 4,99 million contracts ). Options were in a far less demand in the market, the option turnover amounted to nearly Rb 9,4 billion (6,1 thousand transactions and 331,56 thousand contracts ). The maximum trading volume in the futures market accounted for Rb 12.44 billion on July 6, 2006, while the minimum one was Rb 6.54 billion on June 26, 2006.

Corporate Bond Market. The Russian market of corporate bonds denominated in rubles was dominated by moderately positive trends in July 2006. Gradual growth in the beginning of the month was resulted from a favorable situation in the foreign debt market, as well as growth in liquidity level in the banking sector. The growth continued gradually throughout the entire second week of July. In spite of a relatively high growth in the interbank markets rates, the market kept growing gradually as response to the information on that Merrill Lynch had positive assessments with regard to the prospects of the Russian economy due to Russias early repayment of its debt due to the Paris Club of Creditors.

However, the US macroeconomic data gave evidence of still high inflation risks, which constrained activity in the market of corporate bonds denominated in rubles. In the beginning of the second half of the month, quotations of corporate bonds kept growing gradually due to insignificant gaining of the RUR against the USD/EUR basket, fairly high level of liquidity in the banking sector, as well as relatively stable situation in the foreign debt market. It should be especially noted that that the second market have been remaining under pressure of primary offers. However, the recent actions have shown that investors still remain keen interested in high- grade securities ( the demand comes short of the offer ), while the demand is relatively low at auctions of medium- and low-grade securities.

The price index of corporate bonds traded in the MICEX9 grew by 0.20 points ( 0.18%), while the index of the top-10 most liquid corporate bonds showed growth by 0.26 points (0.22% ) in the period between July 3 and 25. The total turnover of the corporate bonds market section in the MICEX totaled about Rb 12.01 billion with an average daily turnover of Rb 750.9 million in the period between July 3 and 24 ( against Rb 12.16 billion with an average daily turnover of 759 million in June 2006 ).

Hence the average daily turnover of the corporate bonds issued by Russian companies remained unchanged in July 2006 as compared to the corresponding figures in June of the same year.

External Factors Effecting the Russian Stock Market. The condition in the world oil market was governed by a stable growth of prices throughout the entire month. The Middle East military conflict was the key reason for another oil price rise, which increased the likelihood of destabilization of oil supply to the world market. In addition, market speculators responded by tradition to the data on oil and oil product reserves in the United States, as well as a forecast made by the International Energy Agency, according to which the worldwide demand for oil is expected to grow by 1.8% in 2007, mainly on account of China.

In a classic stock market.

According to the RTS data.

According to the RTS data.

The calculations were based on the corporate bond indices traded in the MICEX and calculated by Zenit Bank.

Figure Dynamics of corporate bond indices 122.ZETBI-Corp ZETBI-Corp120. 260% Dow Jones Industrial Average NASDAQ Composite The RTS Index 240% 220% 200% 180% 160% 140% 120% 100% 80% The situation in the world stock markets improved insignificantly in July 2006 as compared to last June ( see Table 1 ). Basic stock exchange indices of both the developed and developing countries showed upward trends. The trends in the US stock market was effected by two factors. First, position of the US Federal Reserve System in respect of the US interest rate still remains uncertain: some inflation indications give evidence of high inflation pressure, which at least may result in another increase in the US interest rate ( up to 5.5% per annum ). However, investors have been watching the economic growth indications as well, because rates tend to fall as the economic growth slows down., the outburst of the military conflict in the Middle East has been pushing up oil prices whereby exerting additional pressure upon inflation indicators and economies of the developed countries, and, as a consequence, may have a negative effect on market quotations.

Corporate News.

LUKOIL On July 11, 2006, Standard & Poor's upgraded long-term credit ratings from up to + for LUKOIL, with positive forecast. At the same time, its credit rating was upgraded from ruAA up to ruAA+ according to the domestic, all-national credit rating. The upgrades give evidence of companys continuous growth: in the 1Q of 2006, its net profit amounted to $9 US dollars per barrel of production, which is beyond 29% year on year. Standard & Poor's expects LUKOILs profits and resistance to downward oil price movement to grow by way of rapidly growing gas production.

OJSC Gazpomneft On July 17, 2006, Gazprom Neft received the second tranche in the amount of $260 million US dollars as part of a syndicated credit facility loan of total value of $630 million US dollars. The funds will be utilized to cover general consumption of the company. ABN Amro Bank, Citibank N.A.

and BayernLB were arrangers for the loan. The said credit facility was extended for a period of three years at LIBOR rate + 0.6%. The First tranche at the amount of $370 million US dollars was received on My 16, 2006 and was used to refinance the existing credit portfolio of the company.

Rostelekom Early in July 2006, the company published its audited financial statement for 2005 prepared according to the International Accounting Standards ( IAS ). In 2005, companys consolidated incomes increased 9.7% year on year to Rb 40 955,0 million, according to the presented data. In addition, operation costs had grown by 25.5% as compared to 2004, which resulted from increased payments to communication operators due to traffic growth, as well as scheduled growth in personnel costs. In addition, the company reflected in its financial statement for2005 a Rb 4 970,0 million loss sustained from fixed assets depreciation. Rostelekoms operation profit amounted to Rb 400,0 million in 2005 as compared to 5 005,0 million Rb in 2004. Without taking into account depreciated fixed assets, operation profit amounted to Rb 5 370,0 million, which is beyond 7.3% year on year.

Table 1.

Global Stock Market Indices Trends Changes per Changes since Data as of July 25, 2006 Value month ( % ) 10 year beginning ( % ) RTS ( Russia ) 1506.38 11.70% 26.55% Dow Jones Industrial Average ( United States) 11103.71 0.53% 2.36% NASDAQ Composite ( United States ) 2073.9 -2.80% -7.57% S&P 500 ( United States ) 1268.88 1.46% 0.01% FTSE 100 ( Great Britain ) 5851.2 2.99% 2.99% DAX-30 ( Germany ) 5565.76 0.93% 2.12% CAC-40 ( France ) 4933.12 2.74% 3.75% Swiss Market ( Switzerland ) 7784.8 4.30% 2.05% Nikkei-225 ( Japan ) 15005.24 -0.97% -8.29% Bovespa ( Brazil ) 36681 5.92% 9.47% IPC ( Mexico ) 20082 8.60% 12.03% IPSA ( Chili ) 2097.18 1.18% 8.12% Straits Times ( Singapore ) 2407.56 1.67% 1.61% Seoul Composite ( South Korea ) 1279.77 3.37% -7.88% ISE National-100 ( Turkey ) 35264.4 10.37% -11.38% Morgan Stanley Emerging Markets Free Index 739.413 5.65% 4.58% At 2005 year-end, Rostelekoms consolidated net profit amounted to Rb 978,0 million against Rb 4 266,0 million in 2004. Without taking into account depreciated fixed assets, operation profit, net profit of the company in the period under review amounted to Rb 4 755,2 million, which is beyond 11.5% year on year.

As compared to the levels of August 29.

Foreign Exchange Market. The USD lost against the RUR lost 0.1666 rubles ( - 0.13% ) to reach 26.907 rubles per US dollar in the period between July 1 and 26, 2006, according to the results at the end of the month. The volume of trading on USD in the SELT electronic trading system totaled nearly $41.05 billion US dollars with an average daily turnover of $2.7 billion US dollars in the period between July 3 and 24 ( nearly $36 billion US dollars with an average daily turnover of $2.51 billion US dollars in June 2006 ). Hence forex trade participants were more active in July 2006 than in June of the same year. Maximum volume of trading on USD over the foregoing period was recorded at nearly $6.4 billion US dollars on July 17, 2006, while the minimum was $940.2 million US dollars on July 4, 2006.

Figure Dynamics of the Official USD/RUR and EUR/RUR Exchange Rates in 2005-40.39.Official USD/RUR exchange rate 38.Official EUR/RUR exchange rate Dynamics of the Dollar/Euro Exchange Rate on the International Markets roubles 2.

Financial Markets Indicators Month March April May June July* monthly inflation 0.8% 0.4% 0.5% 0.3% 0.4% Potential annual inflation on the bases of the cur- 10.03% 4.91% 6.17% 3.66% 5.0% rent month trend The RF Central Banks refinance rate 12% 12% 12% 11.5% 11.5% Average yield to maturity of OFZ ( as % per year) 6.73% 6.72% 6.68% 6.59% 6.2% by all issues GKO-OFZ market turnover per month ( Rb bil- 21.32 10.43 16.59 31.41 29.lion) yield to maturity of Minfin Bonds at the end of the month ( as% per year ):

5 tranche 5.60% 5.64% 5.90% 6.11% 6.1% 7 tranche 5.53% 5.69% 6.01% 6.24% 6.0% 8 tranche 4.48% 4.52% 4.75% 4.74% 4.8% yield to maturity of Eurobonds at the end of the month ( as % per year ):

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