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Government securities market In August, Russian Eurobonds demonstrated in general a volatile dynamics in profitability due to adverse external and domestic news background, on the one hand, and publication of data on the lower level of inflation in Russia, on the other hand. Activity in the secondary market decreased by more than 12 per cent as compared with a month earlier.

As of august 22, 2008, the Russian Eurobonds RUS-18 yield to maturity has declined from 5.34 to 5.32 per cent per annum (0.4 per cent), RUS-28 from 6.0 to 5.9 per cent per annum (1.3 per cent), RUS-10 from 4.07 to 2.57 per cent per annum (by 36.8 per cent), having demonstrated the utmost decline among government Eurobonds as per results of the month. As of August 22, 2008, the Russian Eurobonds RUS-30 yield to maturity has declined as compared with the level of July 25, 2008 from 5.77 to 5.72 per cent per annum(by 0.87 per cent), RUS-18 from 5,70 per cent to 5,68 per cent per annum (by 0.35 per cent). Meanwhile, RUS-28 yield to maturity has alternately grown from 6.06 per cent to 6.15 per cent per annum (by 1.49 per cent), RUS-10 from 3.85 per cent to 4.89 per cent per annum (by 27.01 per cent). The latter demonstrated, that as a month earlier, in the current month the In the course of preparation of the survey, there were used analytical materials and surveys published by the Zenith Bank, investment company ATON, MICEX, and the materials presented at web sites of Russian issuing companies.

highest growth was noted in the quotations of government Eurobonds. As of the same date, growth trend was observed in the yields of external currency debt bonds. Thus, the yield to redemption of the seventh tranche of external currency debt bonds has insignificantly growing from 4.39 to 4.41 per cent per annum (by 0.46 per cent) against July 25, 2008 (see Figs 12).

4,70% 4,60% 4,50% 4,40% 4,30% 4,20% 4,10% 4,00% Fig. 1. Minfin bonds' yields to maturity in June - August 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 June - August Within the period from July 26 to August 22 the total turnover of GKO- OFZ secondary market amounted to approximately RUR 42.31 billion with an average daily turnover of RUR 2.12 billion. RUR 60.22 billion with an average daily turnover of RUR 2.41 billion in July), what demonstrated a decline of average daily turnover in August as compared with preceding month by 12.03 per cent.

A number of auctions on additional OFZ placements were arranged in the period from July 26 to August 22. Thus, two auctions on additional placements of OFZ series 25063 and 46021 were held on August 6 for the amount of RUR 14 billion and RUR 10 billion, actual placement made RUR 5.billion and RUR 5.96 billion with an average weighted yield of 6.65 and 7.16 per cent per annum, accordingly. Moreover, two auctions on additional placements of OFZ series 26201 and 46020 were held on August 20 for the amounts of RUR 10 billion and RUR 6 billion, actual placement made RUR 7.76 billion and RUR 5.12 billion with an average weighted yield of 6.99 and 8.22 per cent per annum, accordingly. Thus, despite the fact that total placement in August was planned at the level of RUR 40.00 billion (RUR 35.38 billion in July), the actual total placement made RUR 24.59 billion. That is, the actual placement volume in August amounted to 61.48 per cent of the planned one (43.36 per cent in July), reflecting an increased investors interest in primary OFZ market (almost by 20 per cent).

As of August 31, the GKO-OFZ market amounted to RUR 1155.46 bln at face value and to RUR 1096.11 bln at market value. The duration of the GKO-OFZ market portfolio was 2048.14 days, having decreased by 78.57 days as compared with preceding month, when that duration was 2175.67 days (as of July 27, 2008).

Equity Market Stock market situation The situation in the world financial and commodity markets, based on the negative external background due to the sharp downfall of the U.S. mortgage agencies quotations, write-off of new financial losses of the largest financial companies, significant decline in oil prices has provided a significantly negative effect over the Russian stock market. The downgrading in Russian stock market was also provoked by domestic news - the tense geopolitical situation due to the Russian-Georgian conflict (aggravated by negative international reaction to the RF actions), investors wait-and-see position in expectation of resolving the situation with "Mechel" company, as well as the trend to decline of the ruble rate against the US dollar. Upgrading of the Russian banking system rating by Standard & Poor's agency from Group 8 to a more "credible" group 7 did not provide a significant effect on the market.

All those factors have provoked the downgrading of the most liquid securities value in the Russian stock markets in August (up to 25 per cent), as well as the market stock indices decline, in particular, the MICEX and RTS indices (by 9 and 15 per cent accordingly) as compared with preceding month.

The total volume of trading 140 (roubles, billion) MICEX Index 130 120 110 100 90 80 70 60 50 40 30 20 10 0 Fig. 3 Dynamics of MICEX Index and trading volume points roubles, bi llion Throughout August a strong negative dynamics was observed in the Russian stock market. Thus, throughout August the general trend to decline in MICEX index was observed. The maximum value for the month the MICEX index reached on August 1: 1492.55 points (which is by 12.67 per cent lower than the relevant indicator for the previous period). MICEX index has reached its peak for the month on April 1 (1492.55 points, which was by 1.74 per cent higher than the corresponding indicator for the previous period. Such MICEX index downgrading has reflected general decline trend in the quotations of the Russian companies' equities (Fig. 3).

In general, within the period from July 28 to August 31, 2008, the MICEX index has fell down by 7.36 per cent in absolute terms and made about 107.24 points (within the year, from September 31, 2007 to August 31, 2008 the MICEX index has downgraded by 19.56 per cent). Over the same period the turnover of trades in shares, included in the MICEX index, made about RUR 1185.41 bln at an average daily turnover of RUR 47.42 bln. (against RUR 898.13 billion with an average daily turnover of RUR 44.91 billion in the preceding period of June 28 July 27). Therefore, the investors daily activity in the stock market in August has grown as compared with the preceding period by nearly per cent. The indicators of maximum and minimum turnover in the market trades in August made RUR 68.52 bln (as of April 11) and RUR 29.70 bln (on August 18) accordingly.

As of monthly results (from July 28 through August 31), the majority of blue chips have shown an expressed downfall, excluding GMK Nornickel and Rostelecom, the value of which has upgraded in May by 11.66 per cent and 1.58 per cent accordingly. Thus, the utmost downgrading rates were demonstrated by "Gazprom Neft", and Mosenergo, declined by 25.07 per cent and 20.73 per cent9.25, accordingly. Significant downfall was observed about shares of Sberbank of Russia (by 17.58 per cent), VTB Bank (by 17.56 per cent) Surgutneftegas (by 12.81 per cent), and Gazprom (by 10.58 per cent) (See Fig. 4). Some lower decline rates were observed about the shares of Rosneft (by 9.79 per cent), Tatneft (by 6.00 per cent) and LUKOIL (by 2.38) per cent (Fig. 4).

15,0% 7,5% 0,0% -7,5% -15,0% -22,5% -30,0% (%) Fig. 4. Dynamics of the Russian blue chips from July 28 through August 21, In May the MICEX turnover leaders were: Gazprom(31.36 per cent of the total turnover), GMK Nornickel (16.63 per cent), Sberbank of Russia (16.20 per cent), LUKOIL (15.01 per cent), and Rosneft (5.91 per cent). Total share of transactions with the above five companies equities (blue chips) made about 85.11 per cent (all blue chips - 94.28 per cent) of the gross turnover in the MICEX stock market in the period over July 28 August 31.

In terms of capitalization, as of August 31, the top five leaders of the domestic stock market were:

Gazprom - RUR 7,117.92 bln, Rosneft - RUR 2,348.55 bln, LUKOIL - RUR 1,652.13 bln, RF Sberbank - RUR 1,564.62 bln, GMK Nornickel - RUR 1,017.73.

Futures and options market In August the investors activity in the MICEX futures and options market has significantly increased (over 50 per cent) as compared with the preceding month, while the number of transactions has grown over 17 per cent. Thus, in August the total turnover in the MICEX futures market made about RUR 396.45 bln. (758 transactions, 15.95 mln of contracts) against about RUR 259.80 bln (transactions, 10.92 mln of contracts) in July. Herewith, in August, like in preceding month, the utmost volume of trades was observed in RUR/USD futures contracts, which amounted to RUR 333.06 bln.

(533 transactions, 10.95 mln of contracts). The explicit growth of transactions turnover in August was basically inspired by the increased volume of futures transactions with MICEX index (nearly 2-fold more than in preceding month).

Similar situation was observed in the RTS FORTS futures market, where the investors activity in August has also expressly increased (nearly by 6 per cent) as compared with the preceding month.

Thus, in the period from July 28 through August 31, the total turnover in the RTS futures and options market amounted to approximately RUR 1,349.70 bln. (2,820 transactions, 28.26 mln of contracts) against about RUR 1,273.48 bln (2,217 thousand of transactions, 23.6 mln of contracts) in July. The greatest demand, as before, was for futures: the volume of trading in futures in the period under review was RUR 1,124.42 bln (2,706 thousand of transactions, 22.49 mln of contracts). Herewith, "Shares of electric power companies" futures with maturity date on December 15, 2008, addressed at the support of the electric power companies securities liquidity upon discontinuation of RAO UES trades in the stock market since June 6, has reached in August RUR 804.21 mln (1,310 transactions, 32.98 mln of contracts) against about RUR 283.31 bln (529 transactions, 11 mln of contracts) in July. Options enjoyed a far lower demand, with the volume of trading at about RUR 225.27 bln (113 thousand of transactions, 5.76 mln of contracts). The highest daily level of trading in the RTS futures market in August was RUR 70.85 bln (as of August 5), the lowest level was RUR 32.24 bln (on August 18) accordingly.

Corporate bond market In August, general decline was observed in the dynamics of securities quotations, traded in the corporate debt market. The investors activity in market has explicitly increased within the month (average daily turnover has declined by 1.3 per cent as compared with preceding month). Herewith, the amount of placed issues in August has increased by 2.75per cent as compared with preceding month.

From July 26 through August 22 the price index of corporate bonds, traded on MICEX2, has decreased by 0.44 points (by 0.40 per cent), as well as the index of the ten most liquid corporate bonds, which has downgraded by 0.38 points (by 0.32 per cent) (see Fig. 5). Within that period the total turnover in MICEX corporate bond sector amounted to RUR 60.97 bln with an average daily turnover of RUR 3.05 bln (about RUR 77.34 billion with an average daily turnover of RUR 3.09 billion in July), what demonstrated an insignificant, but steady decline trend in the investors activity in August.

122,ZETBI-Corp ZETBI-Corp120,118,116,114,112,110,108,Fig. 5 Dynamics of corporate bonds indices factors behind Russian stock market dynamics In August the Russian financial market dynamics was determined by the situation in the global financial markets, as well as the domestic news impact. Among the negative global economic factors, affecting the Russian market, it is worth noting the downfall of the stock market, including the information on the new losses of the two leading U.S. mortgage agencies Freddie Mac and Fannie Mae and possible nationalization thereof, the search for investors in the largest investment bank Lehman Brothers for the purchase of the investment business, as well as bankruptcy of three more American banks in August (First Priority Bank, Columbian Bank and Integrity Bank). The negative macroeconomic statistics from the US has deteriorated the situation and urged a significant decline in oil prices, the weakening of the ruble against the U.S. dollar, the negative forecasts for emerging markets and the downfall of commodity prices, as well as the tense geopolitical situation due to the Russian-Georgian conflict and concerns about possible economic sanctions against Russia on the part of the West.

All those factors resulted in volatile dynamics of the world's major stock indices. Thus, in August the downfall of the majority of the global indices was noted as compared with the indicators of early 2008. Thus, the markets of developing countries were characterized by a decline in the major indices by 1-7 per cent, while the downward trend was clearly observed in the background of a significant reduction in the main Russian stock index, which has declined by 9-15 per cent within August. Herewith, the U.S. and European markets in August have grown by 1-5 per cent (against the indicators of the end of July) (see Table 1 and Fig.6).

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