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The revenues of the federal budget in 2008 in terms of proportions of the GDP exceed the corresponding figures of three previous year, but the excess is but minimum, and from January through June of the current year the expenditures established at the level of 16.1% of the GDP, which is practically the average level of expenditures for the range in question starting with 2005. Monthly execution of the federal budget expenditures in the middle of 2008 also corresponds to the average figures of the recent years.

As on July 1, 2008, the aggregate amount of financial resources of the RF Reserve Fund denominated in Rubles made RUR 3 056.52 bln, or 8.1% of the GDP, whereas the amount of financial resources of the RF National Welfare Fund was registered at RUR 770.56 bln, or 2.1% of the GDP (fig. 1). Therefore, the total amount of financial resources accumulated by these two funds in terms of shares in GDP continues to decrease; in January through June of this year the funds diminished by more than 3.5% of the GDP.

16% 14% 12% 10% % GDP 8% 6% 4% 2% 0% Jan Feb March Apr May June July Aug Sept Oct Nov Dec 2006 2007 Note: Data for April-May 2006 are lacking Fig. 1 Total Amount of RF Reserve Fund and the RF National Welfare Fund in 20062008, as percentage of the GDP The RF Ministry of Finance converts the means of the national funds in the foreign currency and places it at the accounts of the RF Central; Bank, which in its turn invests the means within the framework of the international reserves, including in the securities of the most reliable issuers.

At the beginning of July there was a collapse in value of share of two biggest hypothecary companies - Fannie Mae and Freddie Mac8. First, the consequence of this fall was drop in stock indices in the majority of countries, including Russia, second, it is these hypothecary structures, to which the means of the RF Reserve Fund and the RF National Welfare Fund are placed, - the fact that brought sharp criticism to the actions of the RF Ministry of Finance. Experiment with Fannie Mae and Freddie Mac is the first attempt for Russia to invest the means of the national funds in more venturesome assets than public securities. The most probable reason for the investments of the means of the national funds in the USA hypothecary companies is the previous criticism towards the RF Central Bank and ongoing discussions on the necessity for placement of the national fund means more profitably, as well as possible political agreement with the USA Government on support of the USD hypothecary market. It should be noted that the means of the Russian national funds were placed in these companies before the hypothecary crisis became worldwide.

It is important to mention that since the investments were made into bonds and not into shares, these securities have nominal value and fixed revenue at any given moment. Despite the fact that the hypothecary crisis in the USA will not soon come to the end, in the opinion of the majority of experts, the American government continues to support the hypothecary companies and their bankruptcy is very unlikely. Pre-term sale of these bonds is not planned by the RF Ministry of Finance, which means that losses of the Russian national funds from these investments will probably be insignificant (and primarily connected with the dollar exchange rate slackening). According to Dmitriy Pankin, Vice Minister of Finance, the RF Ministry of Finance does not see any grounds to change the proportion of the American hypothecary agencies Fannie Mae and Freddie Mac bonds in the placement assets of the Reserve Fund and the National Welfare Fund.

Fannie Mae and Freddie Mac own about 40% of the market of the hypothecary crediting in the housing sector, which is estimated to be USD 12 trillion. Starting with the middle of last year to March of the current year, losses of Fannie Mae and Freddie Mac exceeded USD 11 bln. As a result of exchange collapse at the beginning of July Fannie Mae and Freddie Mac lost at least 50% of the value.

At the beginning of the current year the RF Ministry of Finance defined the list of the international agencies, to whose bonds of obligation the means of the national funds created on the basis of the Stabilization Fund at the end of January of this year may be placed. Thus the list of possible investments was broadened.

The American hypothecary corporations Fannie Mae and Freddie Mac were also included in the list. At present the suggestions on further extension of assets and opportunities for means of the national funds placement that include shares of private companies are being prepared. These suggestions will probably be ready by autumn 2008.

Financial marketsN. Burkova In July the dynamics of the Russian financial market was defined by the situation at the world financial markets, which was reflected by the reaction of the investors for negative news background, connected with the dramatic drop of quotations of two leading American hypothecary agencies shares, publication of new financial losses by the biggest financial companies as well as economic growth slow-down in the USA. There was an additional negative factor for Russian securities trend for oil prices correction at the world market in the second half of the month. Internal news also contributed in the drop at the Russian stock market tense situation with Mechel company as a result of its critics by Prime Minister V. Putin, Sberbanks accounting not coming up to expectations as well as Federal State Statistics Service on slow-down of industrial production in June. Increase in Russias debt liabilities rating from Baa2 to Baa1 by Moodys agency had only short-term positive influence on the market. The negative trends mentioned revealed themselves most evidently at the drop of the Russian stock market (decrease of blue chips shares quotations by down to 28%), as well as the reduction in the main Russian stock indices MICEX and RTS - of more than 15% as a result of July.

Government Bond Market On the whole in July Russian Eurobonds demonstrated the buoyant dynamics of profitability due to a number of anti-inflation measures taken by the government, including the Bank of Russia increasing currency intervention volumes and making decision on refinancing rate raising by 0.25 percentage points up to 11% of year interests and one-day REPO rate - up to 7% starting with 14 July, which contributed into immediate growth of rates at bonds market and decrease of liquidity at this market.

According to the data on 25 July 2008 yields to maturity of the Russian Eurobonds RUS-30 has increased from 5.49% on 20 June 2008 to 5.77% yearly interest (by 5.1%), RUS-18 from 5.53% to 5.70% yearly interest (by 3.07%), RUS-28 from 5.99 to 6.06% yearly interest (by 1.17%) and RUS-10 from 2.92 to 3,85% yearly interest (by 31.85%). The latter, the same as a month ago, demonstrated the biggest growth as a result of the month among the quotations of the state bonds. By the same date Minfins bondsprofitability showed the same trend. Thus, 7 tranche profitability increased but slightly as compared with 20 June from 4.38% to 4.39% yearly interest (by 0.23%) (fig. 12).

At the ruble debt market positive dynamics of the state bonds profitability was observed: profitability both by the Russian Eurobonds and by Minfins bonds has been increasing. Activity at the secondary market remained at practically the same level as a month ago.

The review is based on analytical materials and review made by Zenit bank, ATON Assets Management Company, MICEX, the Central Bank of Russia, as well as official web-sites of numerous Russian corporate issuers were used.

4,70% Tranche 4,60% 4,50% 4,40% 4,30% 4,20% 4,10% 4,00% Fig. 1 Minfin Bonds' Yields to Maturity in May - July 6,75% RUS-2030 RUS-2010 RUS-2018 RUS-6,25% 5,75% 5,25% 4,75% 4,25% 3,75% 3,25% 2,75% 2,25% Fig. 2 Yields to maturity of the Russian eurobonds with maturity in 2010, 2018, 2028 and 2030 in May - July Over the period from 21 June and 25 July the total secondary GKO-OFZ market turnover was equal approximately to RUR 60.22 bln, an average weighted turnover per day being RUR 2.41 bln (about RUR 47.bln, average weighted turnover per day being at the level of RUR 2.79 bln in June), which corresponds to the reduction of average weighted turnover per day in July as compared with that a month ago by 13.62%.

Over the period from 21 June to 25 July several auctions on additional placement of OFZ were held.

Thus, on 9 July two auctions on additional placement of OFZ issues 46021 and 25063 of RUR 5 bln and 06.05.12.05.15.05.20.05.23.05.28.05.02.06.05.06.09.06.16.06.19.06.24.06.27.06.02.07.07.07.10.07.15.07.18.07.23.07.06.05.12.05.15.05.20.05.23.05.28.05.02.06.05.06.09.06.16.06.19.06.24.06.27.06.02.07.07.07.10.07.15.07.18.07.23.07.RUR 6 bln issuance volume took place, the real volume of placement was equal to RUR 1.34 bln and RUR 4.62 bln with the weighted average yield at the level of 6.82 and 6.53% yearly interest. And on 16 July two auctions on additional placement of OFZ issues 25063 and 46021 of RUR 1.38 bln and RUR 5 bln issuance volume took place, the real volume of placement was equal to RUR 0.06 bln and RUR 0.03 bln with the weighted average yield at the level of 6.74 and 7.01% yearly interest. There were also two auctions on additional placement of OFZ issues 46022 and 26021 of RUR 11 bln and RUR 7 bln issuance volume that took place on 23 July, the real volume of placement was equal to RUR 3.18 bln and RUR 6.11 bln with the weighted average yield at the level of 6.82 and 6.53% yearly interest, correspondingly. Thus, despite the fact that the total issuance volume was planned to be at the level of RUR 35.38 bln in July (RUR 21 bln in June), the total real placement volume made RUR 15.34 bln (RUR 20.97 bln in June). Thus, in July the real placement volume totaled 43.36% of the planned (99.86% in June), which testifies that the interest of investors in primary OFZ market has decreased considerably. This trend was the reflection of the general negative trend at the market of the government securities.

As of 27 July the GKO-FZ market volume accounted for RUR 1130.87 bln at par value and RUR 1111.bln at market value. Duration of the market GKO-OFZ portfolio was 2126.71 days, having thus decreased by 47.19 days as compared with the previous month (as of 27 June).

Corporate Security Market Stock market condition Situation at the world goods market, which reflect the negative background, in connection with the sharp drop of quotations of the leading hypothecary companies of the USA, write-off of new financial losses by the biggest financial companies, trend for correcting of prices for oil, slow-down of the economic growth in the USA contributed into a considerable decrease in stocks value at Russian exchanges as a result of July auctions (up to 28%) and a bearish trend of the main Russian stock indices MICEX and RTS (by more than 15%) as compared with the previous month. The volume of auctions at the Russian stocks exchange also decreased considerably (by 15%) as compared with that of a month ago. The drop at the Russian stocks market was also assisted by the internal news fall of Mechel quotations (by 38%) and the decrease in companys capitalization by one third during one day as a result of its critics by the Prime Minister V. Putin it promoted panic at the market at the end of the month, as well as Sberbanks accounting that did not come up to the expectations and federal State statistics Agencys information on the slow-down of the industrial production in June. Growth of the Russias liabilities in foreign currency rating, as well as the increase in countrys ceiling deposits in foreign currency from Baa2 to Baa1 conducted by Moodys agency had only a shortterm positive effect on the market.

Bearish dynamics at the Russian stocks market was observed throughout July. The trend for MICEX index decrease was observed over the whole month in July. MICEX reached its maximum over the month value on 2 July (1709.17, which is by 10.79% lower than the corresponding figure over the previous period).

Such a reduction in MICEX index in July reflected the general trend for the drop of the majority of Russian enterprises stock quotations. (fig. 3).

On the whole over the period from 28 June to 27 July 2008 MICEX index dropped by 15.79%, which makes about 278.81 points in absolute terms (over the year from 28 July 2007 to 27 July 2008 MICEX index reduced by 10.91%). Over the same period auctions turnover by stocks included in MICEX was equal to approximately RUR 898.13 bln, average weighted turnover per day being at the level of RUR 44.91 bln (about RUR 1 052.72 bln, average weighted turnover per day being at the level of RUR 47.85 bln over the previous period from 28 May to 27 June). Thus, average daily level of investors activity at the stocks market has decreased by more than 6% in July as compared with the previous period. The values of maximum and minimum daily turnover in the trading system in July were equal, correspondingly, to RUR 65.bln (on 18 July) and 26.31 bln (on 4 July).

140 2 000,The total volume of trading 130 (roubles, billion) 1 900,MICEX Index 120 1 800,110 1 700,100 1 600,90 1 500,80 1 400,70 1 300,60 1 200,50 1 100,40 1 000,30 900,20 800,10 700,0 600,Fig. 3 Dynamics of MICEX Index and Trading Volume 5,00% 0,00% -5,00% -10,00% -15,00% -20,00% -25,00% -30,00% Change in price (%) Fig. 4 Dynamics of the Russian Blue Chips from June 28 to July 27, As a result of the month (from 28 June to 27 July 2008) all blue chips stocks demonstrated a considerable decrease in quotations. It was Mosenergo, Gazprom and Surgutneftegaz stocks that demonstrated the biggest drop their value decreased by 28.46, 21.02 and 20.15%, correspondingly. There was also a considerable decrease in quotations that was characteristic for Mining and Metallurgical Company Nornickel (by 19.80%), Tatneft (by 18.30%), Rosneft (by 16.36%), LUKOIL (by 16.23%), Gazprom neft (by 15.94%).

Prices for stocks of Sberbank of Russia (by 5.44%) and Rostelekom (by 2.50%) reduced by smaller decrease rates. (fig. 4).

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