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points roubles, billion,00% 0,00% -10,00% -20,00% -30,00% -40,00% -50,00% -60,00% -70,00% -80,00% Change in price (%) Fig. 4. Dynamics of the Russian Blue Chips from September 29 to October 26, In October the MICEX turnover leaders were: Gazprom(37.53 per cent of the total turnover), Sberbank of Russia (22.93 per cent), LUKOIL (8.74 per cent), GMK Nornickel (7.85 per cent), and Rosneft (7.58 per cent). Total share of transactions with the above five companies equities (blue chips) made about 84.63 per cent (all blue chips 93.10 per cent) of the gross turnover in the MICEX stock market in the period of September 29 October 26.

According to MICEX information, as of October 26, the top five leaders of the domestic stock market in terms of capitalization were: Gazprom RUR 4,928.35 bln (RUR 5,887.60 bln in September), Rosneft - 1 736.05 bln, (RUR 1989.29 bln in preceding month), LUKOIL - RUR 1,313.53 bln, (RUR 1,536.68 bln in September), Sberbank of Russia - 1 018.04 bln (RUR 1,336.45 bln in September), UGMK Nornickel RUR 697.09 bln (941.10 billion rubles a month before).

Futures and Options Market The investors activity in the futures market in October has declined (nearly by 15 per cent) as compared with the preceding month. Herewith, the number of transactions has decreased by 5.3 per cent.

Thus, in October the total turnover in the MICEX futures (options) market made approximately RUR 383.73 bln (628 transaction, 14.21 mln of contracts), against RUR 448.83 bln (663 transaction, 17.mln of contracts) in September.

The largest volume of trading in October, like in preceding month, took place in RUR/USD futures, RUR 382.84 billion (605 of transactions, 14.206 billion of contracts). Herewith, the turnover in futures transactions within the period has declined by almost 15 per cent compared with a month before.

Thus, in the period from September 29, 2008 through October 26, 2008, the total turnover in the RTS futures and options market amounted to approximately RUR 351.19 bln (2 659 thousand of transactions, 11.92 mln of contracts) against about RUR 825.35 bln (2221 thousand of transactions, 19.85 mln of contracts) in September.

The greatest demand, as before, was for futures: the volume of trading in futures in the period under review was RUR 323.42 bln (2 622 thousand of transactions, 11.23 mln of contracts). Herewith, the volume of trading in futures "Shares of electric power industry companies" with the yield to maturity on December 15, 2008, aimed at maintaining the liquidity of shares of electric power companies after the trades suspension of RAO UES at the stock markets on June 6, amounted to RUR 11.394 billion in September (227 transactions and 1.18 thousand of contracts), against approximately RUR 139.million (632 transactions and 32.98 thousand contracts) in September.

Options enjoyed a far lower demand, with the volume of trading at about RUR 27.77 bln (thousand of transactions and 0.69 mln of contracts). The highest level of daily trading in the RTS LUKoil Tatneft Rosneft Gazprom Russia Bank VTB Mosenergo Rostelecom Sberbank of GMK NorNikel Gazprom neft Surgutneftegas futures market in October was RUR 26.36 bln (as of October 3), the lowest was RUR 12.13 bln (as of October 16).

External factors behind Russian stock market dynamics In October the Russian financial market dynamics, as a month earlier, was dependant on the situation in the world financial markets. Among the adverse global market conditions, affecting the Russian market, a sharp decline in the U.S., European and Asian stock market at the background of stronger disturbance in the global financial sector is worth noting. Adopted by the Government of Germany and a consortium of private banks plan on the largest German mortgage bank Hypo Real Estate Holdings AG recovery has also urged negative expectations of investors and provoked a collapse of major stock indexes in Europe. The deterioration of the situation was affected by the global crisis of liquidity and solvency deficit, the US negative macroeconomic statistics, the slowdown in the global economy, the continued significant decline in oil prices (at the end of the month the oill price has fallen below USD 60 per barrel), further strengthening of the USD position, the negative forecasts for emerging markets and reduced demand for commodities. Even approval of the US Congress the plan to support the financial sector by USD 700 billion and the presentation of Britain, France and Germany plans for financial support to the banking sector, as well as decrease of interest rates in early October by the central banks of the US, Europe (ECB), Britain, Canada, Sweden, Switzerland and China. Then South Korea, Hong Kong and Taiwan failed to provide the expected positive impact on the world markets, only confirming the fears of a deepening financial crisis.

All those factors resulted in sustainable trends of the major world stock indexes downfall. For example, in October, there was a significant decline in global indices, as compared with the level of early 2008 (by 20-80 per cent on average). A similar trend was observed in the indicators at the end of September 2008. Thus, the markets of developing countries were characterized by the decline of the major indexes by 15-40 per cent, the US and European markets - by 20-30 per cent. (See Table 1. and Fig. 5).

Table Dynamics of international stock market indices (as of October 26, 2008) Dynamics Dynamics since Index Ticker Value within the the year month(%)13 beginning(%)MICEX (Russia) MICEXINDEXCF 513,62 -52,40 -72,RTS (Russia) RTSI 549,43 -57,26 -76,Dow Jones Industrial (USA) Average DJI 8378,95 -24,81 -36,(USA (USA) (USA) NASDAQ Composite (USA) NASD 1552,03 -28,91 -41,S&P 500 (USA) SPX 876,77 -27,73 -40,FTSE 100 (UK) FTSE 3883,36 -23,68 -39,DAX-30 (Germany) DAX 4295,67 -29,16 -46,CAC-40 (France) CAC 3193,79 -23,29 -43,Swiss Market (Switzerland) SSMI 5675,09 -16,73 -35,Nikkei-225 (Japan) NIKKEI 7649,08 -35,69 -50,Bovespa (Brasil) BUSP 31481,55 -38,01 -50,IPC (Mexico) IPC 16978,84 -33,66 -42,IPSA (Chile) IPSA 2342,90 -15,85 -23,Straits Times (Singapore) STI 1600,28 -33,64 -54,Seoul Composite (South Korea) KS11 938,75 -36,41 -50,ISE National-100 (Turky) XU100 24176,68 -33,87 -56,Morgan Stanley Emerging Markets Free EFM 394,04 -41,20 -60,Index * Versus indices of September 28, Versus index indicator valid on September 27, 2006.

Versus index indicator valid on September 27, 2006.

130,0% 120,0% 110,0% 100,0% 90,0% 80,0% Dow Jones Industrial Average NASDAQ Composite 70,0% The MICEX Index The RTS Index 60,0% 50,0% 40,0% 30,0% 20,0% Fig. 5.Dynamics of the main USA and Russian stock indexes (in % as of 01.08.2007) Corporate News VTB Bank On October 3, VTB Bank has disclosed unconsolidated financial results in accordance with IFRS for September 2008, under which the assets of the Bank increased by 7 per cent and the net profit of the Bank as of October 1, 2008 amounted to RUR 7.4 billion, as compared with RUR 16.8 billion on September 1, 2008.

On October 24, VTB Bank has signed an agreement with Vneshekonombankom on involvement of subordinate credit in the amount of RUR 200 billion for the term to the end of 2019 at the rate of 8 per cent per annum (in accordance with federal law N 173-FZ of 13.10.2008 On additional measures to support the financial system of the Russian Federation).

On October 28, VTB Bank and the Bank for Investment and Development of Vietnam (BIRV) have signed a Memorandum on comprehensive cooperation, implying expansion of cooperation in financing commercial transactions, investment projects support, in the area of treasury operations and international capital markets, as well as support and assistance in the development of Vietnam-Russian joint Bank (VRB).

Moreover, on October 28, VTB Bank has signed a loan agreement with Eximbank of China for the value, exceeding USD 18.5 million. The project financing is carried out in accordance with the loan agreement, signed on March 26, 2007, amounting to USD 500 million between VTB Bank and Eximbank of China, aimed at the development of bilateral inter-banking relations, growth of trade turnover between Russia and China and expansion of financing the Russian imports of telecommunications equipment and services from China.

Gasprom On September 29, OAO Gazprom and Kogas have signed a Memorandum of Understanding for the supply of natural gas from Russia to Korea, envisaging a pipeline for supplying natural gas to Republic of Korea consumers through the Korean Peninsula, as well as joint research on this route. On October 2 OAO Gazprom and the German company E. ON AG have signed an agreement on joint participation in the development projects of South-Russian oil and gas deposits, providing for the exchange of assets, due to which the E. ON AG will receive 25 per cent minus one ordinary share in the authorized capital of OAO Severneftegazprom, thus acquiring the right to take part in the development of South-Russian deposit. OAO Gazprom will receive 49 per cent in ZAO Gerosgaz, that owns 2.93 per cent shares in OAO Gazprom. October 9, OAO Gazprom and the Government of Kyrgyz Republic have signed a Memorandum of Understanding to promote cooperation within the framework of the privatization of the public shareholding of OAO Kyrgyzgaz.

On October 10, the Board of Directors of OAO Gazprom has decided to establish a representation office of OAO Gazprom in Brazil in order to promote activities in Latin America.

On October 22, OAO Gazprom has disclosed the unaudited consolidated interim financial reporting as per the International Financial Reporting Standards (IFRS) for the first quarter of 2008, in accordance to which sales (after excise, VAT and customs duties) increased by RUR 291 416 million or 48 per cent over the same period in 2007, and amounted to RUR 902 944 million.

Gasprom Neft On September 30, OAO Gazprom oil has disclosed consolidated financial statements as per the US GAAP for the 2-nd quarter and 1-st six months of 2008. In the second quarter of 2008, the net profit amounted to USD 2.196 million (which exceeds the relevant indicator of the second quarter of 2007 by 84.5 per cent), EBITDA made USD 3.093 million (an increase by 70.6 per cent over the same period of 2007), revenues increased by 92.3 per cent up to USD 811 million. In the 1-st half of 2008, the net profit amounted to USD 3 607 million (which is exceeds by 93.7 per cent the level of 2007), EBITDA has grown by 74.6 per cent and reached USD 5 119 million, revenues grew by 91.2 per cent and amounted to USD 17 677 million.

Mosenergo On October 22, OAO Mosenergo and Siemens AG have signed the fourth and final contract in the framework of the investment program to supply equipment for the HPP-25.

Rostelecom On October 20, OAO Rostelecom with the participation of the major Japanese telecom operator KDDI Corporation, has opened the point of presence in Tokyo.

Sberbank of Russia On October 3, Sberbank of Russia has signed an agreement on the syndicated loan (for corporate needs) in the amount of USD 1.2 billion for the term of 3 years, the cost of borrowing is LIBOR +0.per cent per annum. Fifteen financial institutions from Europe, North America and Japan have joined the syndicate.

On October 20, Sberbank of Russia has disclosed an interim consolidated financial statements as per the International Financial Reporting Standards for six months of 2008: according to the reporting, the assets totaled to RUR 5 604.3 billion and the net profit is RUR 67.0 billion (which exceeds by 39.per cent the corresponding indicator for the six months of 2007).

On October 21, Sberbank of Russia has disclosed the financial results for the nine months of 2008, developed in accordance to the Russian accounting standards, under which the net profit amounted to RUR 102.9 billion (by 26.7 per cent more than within the same period of 2007).

Tatneft On October 23, OAO Tatneft has disclosed consolidated interim financial statements, developed as per US GAAP for the six months of 2008. According to the reporting, revenue and other operating income increased by 57 per cent to RUR 246 487 million as compared with the same period in 2007;

EBITDA increased by 24 per cent to RUR 36 043 million; net profit grew by 27 per cent to RUR 005 million.

Corporate bond market In October the volume of corporate bonds, issued in Russia (at face value) has reached one of the highest peaks since the beginning of 2008 and amounted to RUR 1 627.9 billion, what is by 1.4 per cent higher than the indicator of September 2008. Within the period from September 29 to October there were committed 25.1 thousand transactions in corporate bonds on the MICEX Stock Exchange, totaling to RUR 38.6 billion (28.4 thousand transactions for the total amount of RUR 54.9 billion from August 25 to September 26)15.

In October 2008, negative trend in the Russian market of corporate bonds index RUX-Cbonds was noted, which declined during the period from September 24 to October 24 by 10 points to the minimum level since October 2007. Herewith, the effective yield has increased from 14.8 per cent to Finmarket agency information: http://www.finmarket.ru/ the peak value of 18.0 per cent and the duration of the portfolio of corporate bonds fell down by days and made 692 days (See Fig. 6).

20 Effective yield Index RUX-Cbonds 0 Fig. 6. The dynamics of the Russian corporate bonds market index and the weighted average yieldAs of 27.10.2008, the bulk of the debenture issues in circulation are the bond issues for the nominal value of RUR 1 to 5 billion. (Fig. 7). However, a large number of companies need to attract funds in the amount, not exceeding RUR 1 billion.

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