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Figure 2. Dynamics of the Monetary Base and Gold and Currency Reserves in 860 46,850 45,840 45,830 44,820 44,810 43,800 43,790 42,780 42,770 41,760 41,750 40,740 40,730 39,720 39,710 38,700 38,690 37,680 37,670 36,660 36, (. .) (. $) D. Levchenko Financial Markets The Market for Government Securities In October 2002, the trend towards a slight decrease in yields observed in the Russian market for foreign debt during previous months, continued. The negative expectations potential related to the elections in Brazil has been obviously exhausted. As had been expected, on 27 October 2002 Luis Ignacio Lula Da Silva, nominated by the opposition Labor Party, was elected President of Brazil. A few days before the elections Brazilian securities and the Real even demonstrated a slight rise, however, then they decreased again. Now investors wait for the President to appoint the Cabinet. As far as Russian proper is concerned, one might note that Moody's intends to upgrade the country's credit rating. The yield on all series fell below 10 percent p.a.

On 30 October 2002 the greatest yield of 9.93 percent was marked for Euro-28. The decision by the US Federal Reserve System to decrease the refinance rate can also result in a further rise in quotations.

. . 8-14.4.3-9.6.1-7.7.6-12.5.11-17.2.11-17.3.25-31.3.22-28.4.20-26.5.17-23.6.15-21.7.25.2-3.3.30.7-5.8.27.8-2.9.14-20.01.13.8-19.8.28.01-3.02.08.10-14.10.31.12.01-6.1.10.9.02-16.9.24.9.02-30.9.Figure 1. Yield to Maturity of Minfin Bonds in May to October 2002.

11,5% 11,0% 10,5% 10,0% 9,5% 9,0% 8,5% 8,0% 7,5% 7,0% 6,5% 6,0% 5,5% 5,0% 4 5 6 Figure 2 Yield to Maturity of Russian Eurobonds with Maturities in 2003, 2007 and in May to October 11,0% 10,5% 10,0% 9,5% 9,0% 8,5% 8,0% 7,5% 7,0% 6,5% 6,0% 5,5% 5,0% 4,5% 4,0% 3,5% USD-2003 USD-2007 USD-In September the annualized yield of securities in the market for domestic debt was 15 percent. Based on preliminary data, the estimated turnover is expected to be RUR 17.5 billion.

The Market for Corporate Securities In October the RTS index passed the psychological barrier of 350 points. In accordance with the existing tradition, security quotations have developed under the influence of positive factors (positive macroindicators of the Russian economy and high oil prices) and negative factors (lack of stability in international financial markets).

07.05.16.05.23.05.30.05.10.06.18.06.25.06.02.07.09.07.15.07.22.07.29.07.05.08.12.08.19.08.26.08.02.09.09.09.16.09.23.09.30.09.07.10.14.10.21.10.07.05.15.05.21.05.27.05.31.05.10.06.17.06.21.06.27.06.03.07.09.07.16.07.22.07.26.07.01.08.07.08.13.08.19.08.23.08.29.08.04.09.10.09.16.09.20.09.26.09.02.10.08.10.14.10.18.10.The Stock Market Figure 3.

($) From 01 to 28 October the RTS index grew 18.74 points (5.61 percent), reaching 352.8 points as on October, which is twice as high as the similar indicator for the previous period. It should be noted that during October the index reached a three-month high of 360.23 points. The greatest intra-day index growth was 10.77 points (+3.17 percent). The greatest intra-day drop of 9 points (-2.51 percent) was observed on October, which was caused by the tragedy in Moscow. The trade volume grew US$ 26.4 million (+10.percent) as compared to the respective period of the previous month, reaching US$ 277.6 million. The average daily turnover grew as well, reaching US$ 13.9 million. The greatest activity was marked on October when the trade volume reached a three-month high of US$ 25,52 million; the lowest turnover was marked on 14 October at the level of US$ 4.8 million.

Figure 4.

30 2002 . 28 2002 .

25% 20% 15% 10% 5% 0% -5% (%) Price for almost all of liquid securities grew during the period in question; however, the growth was uneven. Shares of RAO UES demonstrated the greatest growth (21.20 percent); Sberbank shares come second with 14.69 percent and the shares of MMC Norilsk Nickel come third with 10.92 percent. The growth in quotations of Sberbank shares is related to the possible approval of the proposal by the RF Ministry for . 3 1 20 29 17 15 26 27 28 24 26 27 27 23 25 Economic Development and Trade to loosen up the existing limitations on participation of non-residents in the capital of Russian banks, which would, without doubt, positively affect the development of the Russian banking system. The increase in quotations of Norilsk Nickel shares has been brought about chiefly by the information that it has entered into a long-term agreement with General Motors on deliveries of metals of the platinum group. Prices for the securities of the following companies changed to a smaller extent: Mosenergo (7.04 percent), Rostelecom (6.90 percent) and Surgutneftegas (6.15 percent). The last places in the growth list are filled by Sibneft (2.18 percent), Lukoil (1.9 percent) and Yukos (0.73 percent). Among the "second tier" shares we would like to note the securities of Slavneft-Megionneftegas (+89,68 percent), whose sudden growth is a result of the RF Government's decision to sell 75 percent of Slavneft's shares in December 2002, and Uralsviazinform (+30,61 percent), whose share prices grew due to good financial results for 2001 and a transfer to a single share.

In October ordinary shares of RAO UES took the top position in the trade volume in the total turnover at RTS with 29.22 percent as compared with 29.41 percent in the previous month. The proportion of ordinary Lukoil shares was 23.31 percent (15.07 percent), Yukos: 12.02 percent (16.13 percent), Surgutneftegas:

11.03 percent (10.68 percent). The proportion of Sibneft shares almost doubled, reaching 5,21 percent (2.percent). On the whole, in October the total proportion of five most liquid shares in the overall RTS turnover grew up to 80,79 percent (in September: 79.12 percent).

In the period from 01 till 28 October 2002 the volume of trade in Gazprom shares conducted via RTS terminals decreased as compared to the previous period, reaching US$ 54.7 million (ca. 74.6 million shares);

a total of 8.7 deals were concluded with Gazprom securities.

In October the top five Russian companies by capitalization were as follows (RTS data): Yukos, US$ 20.billion; Gazprom, US$ 17.7 billion; LUKoil, US$ 13.6 billion; Surgutneftegas, US$ 12.8 billion; Sibneft, US$ 9.5 billion.

The Market for Term Contracts Market participants continue to take an interest in the FORTS market for term contracts. In the period from 01 till 28 October the total trade volume in the market for term contracts exceeded RUR 6.9 billion (49.5 thousand deals, 2.08 million contracts). Futures contracts accounted for RUR 6.87 billion (48.thousand deals, 2.04 million contracts) in this amount.

The greatest activity was marked in the end of the month: on 28 October the turnover reached RUR million. The average daily turnover was RUR 349.6 million, the number of deals: 2475.

Factors Affecting the Pricing Figure 5.

220% Dow Jones Industrial Average Nasdaq Composite 200% 180% 160% 140% 120% 100% 80% 60% 40% A recession in the world's largest exchanges continued in the first half of October. In Quarter 3 the Dow demonstrated the weakest results since 1987 (-17 percent), NASDAQ declined ca. 20 percent. As a result of the trade session on 9 October the Dow fell to the level of November 1997 (7286.27), NASDAQ - down to.

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October 1996 (1114.11). These dynamics have been caused by negative corporate news: shutdowns of ports at the US West Coast and lack of clarity in respect to military action against Iraq. In other developed countries the situation also far from excellent. In Japan, Nikkei-225 hit the 19-year low.

However, in the end of the month US stock indexes partially managed to recover. By 23 October Dow Jones and NASDAQ had grown up to 8494.27 (+16.6 percent up from the lowest level) and 1320.23 (+18.percent), respectively. On the whole, in the course of October DJ grew 11.89 percent and NASDAQ grew 12.64 percent. The chief reason for the increase in share prices was positive financial reports by largest corporations: the performance of Yahoo!, Aetna, IBM, Microsoft and Citicorp exceeded expert estimates, and the performance of General Electric, the world's largest company by capitalization, was in accordance with the expectations. The performance of the largest companies was higher than predicted, which allows to assume that the period of recession in corporate profits is coming to an end.

Figure 6. Price for Brent Crude Oil, USA Brent, (NYMEX) The main factor affecting the level of oil prices was the possibility of a war in the Persian Gulf. While the probability of a military conflict between the USA and Iraq was high, oil prices remained at a high level:

US$ 28-29/ barrel. However, following a statement by the Bush Administration that it was possible to find a peaceful settlement, the prices for crude oil fell below US$ 27/ barrel.

According to the statement by the Oil Minister of Qatar, OPEC does not intend to increase crude oil production in the foreseeable future.

It is important to note favorable domestic news. The State Duma has passed the package of laws on reforms in the electroenergetics sector at the first reading. FATF has taken Russian out from its blacklist.

Moody's has declared it could upgrade the sovereign rating of the RF in foreign currency for bonds and bank loans. The possible revision of ratings would be based on an assessment of Russia's financial and macroeconomic indicators and the data on the course of structural reforms, in particular in the field of natural monopolies.

Corporate News OAO Lukoil LUKoil has published its GAAP financial statements for the first six months of 2002. From January till June 2002 the proceeds from oil sales in the territory of RF were US$ 235 million, or US$ 183 million less than in the respective period of 2001. Oil exports and oil sales by foreign subsidiaries brought LUKoil US$ 1.983 billion in proceeds (2001: US$ 1,977 billion). In the reporting period LUKoil's revenues from operations outside the RF grew from US$ 4.641 billion to US$ 4.924 billion; their proportion in the company's total revenues increased to 74.14 percent (68.1 percent in the respective period of 2001).

OAO Sberbank The Supervisory Board has decided to pay RUR 1.907 billion in dividends for 2002, which is 7 percent of the expected net income. Both the absolute and the relative amount of planned dividend payments will .

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exceed last year's figure. The Bank management expects that the amount of payment per one ordinary share with par value of RUR 50 would be RUR 95, and per one privileged share with par value of RUR 1 it would amount to RUR 2. Let us remind that last year the amount paid on one ordinary share was RUR 52.9 and on one privileged share, RUR 1.1.

OAO MMC Norilsk Nickel The trading company Norinmet, Ltd., a 100-percent subsidiary of the MMC, has entered into a long-term contract with the General Motors for deliveries of platinum group metals. Norilsk Nickel has not bee delivering platinoids to international markets since the beginning of 2002, and the conclusion of a contract with one of the largest US corporations allows to hope for stable revenues from sales of the platinum group metals and better performance of the metallurgical holding on the whole.

OAO Sviazinvest According to the press service of this telecom holding, in the first half of 2002 profits from sales of telecommunication companies grew 59 percent, reaching RUR 15.6 billion. Gross income of Sviazinvest operators grew 28 percent up to RUR 54.2 billion in the period under review, and expenses on the main operations grew 19 percent, amounting to RUR 38.6 billion.

OAO Tatneft Standard & Poor's has changed its forecast for Tatneft from stable to positive and confirmed the company's long-term "B-" rating. The company's rating reflects the significant amount of exports, reasonable financial policy, considerable assets as well as insufficient diversification of operations, insufficient processing facilities, long periods of time required for the development of the main deposits, high level of short-term debts and an influence that the Government of the Tatar Republic has on the company.

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