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Jul Jul Jul Jul Jul Jul Jan Jan Jan Jan Jan Jan Oct Oct Oct Oct Oct Oct Apr Apr Apr Apr Apr Apr (see Fig.2). At the same time, the gold and foreign currency reserves of the RF Central Bank also grew by 5.1 per cent and amounted, as of November 1, to USD 447 bln. Within the first two weeks of November they have increased by 2 per cent more and reached the level of USD 455.8 bln. A greater portion of the national liquidity inflow was accumulated in the RF Stabilization Fund, which volume as of November 1, amounted to RUR 3,649.3 bln, or 11.7 per cent of GDP (+ RUR 130.2 bln against October 1of 2006). Within the relevant period of preceding year the volume of the RF Stabilization Fund has grown by RUR 155.3 bln.

Changes in the Monetary Base and in the Gold and Foreign Currency Reserves in 2006 - 2730 2650 Monetary Base (billion rubles) Gold and Foreign Currency Reserves (billion dollars).Fig. 2.

Source: RF Central Bank Therefore, in October-November, the inflow of currency into the country has renewed as a result of oil prices growth, as well as due to renewed capital inflow from private sector. As a result, the real effective exchange rate of the ruble started to grow again: while in August-September it practically stayed at the same level of 129.4 129.65, in October it has grown to 130.6 (see Fig. 3).

In October, downgrading of US dollar in the world currency market continued, provoking its further decline in the RF: by the end of the month the dollar rate was RUR 24.72. Despite the significant strengthening of ruble against dollar, the Bank of Russia has reduced the value of currency basket6 only by 2 kopecks as compared with September. As a result, EURO rate at the end of September has grown to RUR 35.59.

The level of 2002 is accepted as 100 per cent.

Currency basket is the RF Central Bank operational indicator in its foreign currency policy. Currently the share of EURO in the currency basket makes 45 per cent, USD 55 per cent.

billion rubles billion dollars 3-9.11.2-8.06.6-12.01.4-10.08.6-12.10.22-28.09.13-19.10.24-30.11.16-22.12.17-23.02.10-16.03.21-27.04.12-18.05.23-29.06.14-20.07.25-31.08.15-21.09.17- of Ruble`s Exchange Rate Dynamics 38 135,130,125,120,115,110,105,100,20 95,Official USD/RUR exchange rate (end pf period) Official EUR/RUR exchange rate (end of period) Value of the two-currency basket Real effective exchange rate index (right scale) Fig.. 3.. RUR exchange rate in January 2002 September 2007.

Source: RF Central Bank, authors estimates.

According to the information of the Federal Treasury, payments under external debt in October of the current year have made USD 503.7 million. The amount of USD 475.6 million was addressed to external debt redemption and USD 28.1 million was paid for the services thereof. Herewith, USD 57.6 million was million was spent to cover the debt of Russia, 68.5 million for the World Bank and EBRD loans, USD 0.04 million for loans raised upon bonds and USD 377.6 million under intergovernmental agreements.

In November the information was disclosed on the RF Central Bank intention to make a break in the longterm cycle of the refinancing rate reduction. Wed like to remind, that the refinancing rate is of great importance to the value of credits, provided to commercial banks by the Bank of Russia. The upgrading of refinancing rate is based on the inflation upsurge, happened in autumn of the current year, which provoked the refinancing rate reduction in real terms. With regard to the crisis in the world financial market and increased demand for credits, provided by the RF Central Bank, on the part of credit organizations, it is expected, that the upgrading of refinancing rate should restrain excessive borrowings by the banks and result in extended monetary offer, when the situation in the Russian inter-banking credit market get improved. It is worth noting that until recent time the refinancing rate provided practically no impact over the RF financial market due to the lack of demand for refinancing on the part of the Russian banking system.

To increase the liquidity volume, available to the Russian banks, the RF Central Bank has informed in December on the possibility of banks refinancing under a guarantee of corporate Eurobonds of prominent companies. Earlier the Central Bank guarantee list included only the RUR securities of the RF Ministry of Finance and Bank of Russia, some large banks and prominent Russian companies, the RF Subjects, as well as Russian Eurobonds. That measure will expand the range of assets, available to commercial banks in case of an aggravated situation in financial market.

In November the RF Central Bank representatives have informed on the plans to exchange the assets of the RF Stabilization Fund in the open market rather than trough the Bank of Russia inter-banking rate. That measure will, on the one hand, add to transparency of price formation in the currency market, while on the other hand, creates the risk of higher volatility of the RUR exchange rate.

RUR Jul Jul Jul Jan Jan Jan Sep Sep Sep Mar Mar Mar Nov Nov May May May Financial MarketsN. Burkova In November, the weakness of the USA economy has negatively affected the expectations of investors throughout the world, including the participants of the Russian stock market, where quotations were getting down. MICEX and RTS indices have downgraded. The decline was taking place in the background of the low activity of investors. As opposed to the stock market, there was noted a steady growth of investors' activity in the market of derivative financial instruments, namely in RTS.

Government securities market In November the situation in the Government securities market was characterized by the decline of investment activity and slowed-down growth rate of secondary market turnover.

As of November 25, the Russian Eurobonds RUS 30 yield to maturity made 5.80 per cent per annum, RUS-18 5.77 per cent per annum. As of the same date, the yield to redemption of the Russian Eurobonds made: for the seventh tranche of external currency debt bonds 5.4 per cent, the eight tranche of external currency debt was redeemed on November 14, 2007 by External Trade Bank, acting as an agent-payee and provider of services to the depository of the RF Ministry of Finance..

FIG. 1.

Minfin bonds' yields to maturity in September-November 7,0% Tranche 5 Tranche 8 Tranche 6,5% 6,0% 5,5% 5,0% 4,5% 4,0% 3,5% 3,0% 2,5% 2,0% 1,5% , ͻ, , , - -. 2.

Yields to maturity of the Russian eurobonds with maturity in 2010, 2018, 2028 and 3030 in September - November RUS-2030 RUS-2010 RUS-2018 RUS-6,5% 6,0% 5,5% 5,0% 4,5% 4,0% 3,5% 3,0% 2,5% 2,0% A smooth decline in yields to redemption was observed within the month in the ruble debt market as well.

The main reason for the weak activity in the debt market is explained by liquidity shortage. To mitigate the situation, the Central Bank has decided to open new refinancing opportunities: it has announced a session of the direct REPO operations with a fixed daily rate of 8 per cent, which will allow the banks to attract funds not only during the auctions, but throughout the day as well. Some strengthening of ruble against dollar could also back up the quotations of the Russian bonds, denominated in RUR.

Within the period from October 26 to November 23 the total turnover of GKO- OFZ secondary market amounted to approximately RUR 38.09 billion with an average daily turnover of RUR 1.69 billion. (about RUR 137.9 billion with an average daily turnover of RUR 2 billion in October). Two auctions on additional OFZ placement were arranged in November. The auction on placement of OFZ series 25061 was held on November 7 for the amount of RUR 5 billion, actual placement made RUR 4.6 billion with an average weighted yield of RUR 6.05 per cent per annum. Another auction on placement of OFZ series 2546021 was held on November 21 for the amount of RUR 4.5 billion, with an average weighted yield of RUR 6.43 per cent per annum.

As of November 26, the GKO-OFZ market amounted to RUR 1034.2 bln at face value and to RUR 1047.1 bln at market value. The duration of the GKO-OFZ market portfolio was 2117.62 days.

Equity Market Stock market situation The market was influenced by negative performance results of the largest American mortgage companies and strengthened fears of higher mortgage losses and stagnation in economic growth in the United States.

Throughout November a strong downward dynamics in the Russian stock market was noted. However, positive impact on the overall dynamics of the market was provided a growing interest to the oil and gas sector in view of the growing world oil prices, the decision of the Central Bank to support ruble liquidity, as well as a number of positive corporate news. As a result, the MICEX index has reached a new historical peak of 2917.29 points, having grown by 13.22 per cent since the beginning 2007. Earlier peak of MICEX index was recorded on November 6, 2007 at the level of 1907.63 points. 3.

Dynamics of MICEX Index and trading volume 113 2 000,The total volume of trading (roubles, 1 900,billion) MICEX Index 1 800,1 700,1 600,75 1 500,1 400,60 1 300,1 200,45 1 100,38 1 000,900,23 800,15 700,8 600,0 500,In general, within the period from October 26 through November 23, the MICEX index has decreased by 3.36 per cent, i.e., by 62 points in absolute terms. Within the same period the turnover of trades on shares, included in the MICEX index, made about RUR 1,301.41 bln at an average daily turnover at the level of RUR 49.5 bln (as compared with about RUR 989.1 bln at an average daily turnover at the level of RUR 49.bln in October). Therefore, the investors activity in the stock market in November has explicitly upgraded as compared with the preceding month. The indicators of maximum and minimum turnover in the market trades in November made RUR 107.5 bln (as of November 1) and RUR 45 bln (as of November 16), accordingly.

FIG. 4.

Dynamics of the Russian Blue Chips from October 26 to November 23, 5,00% 2,50% 0,00% -2,50% -5,00% -7,50% -10,00% -12,50% -15,00% Change in price (%) As of monthly results (from October 26 through November 23), practically all blue chips have shown a decline in their market values. The leaders in terms of downfall rates were shares of Surgutneftegas.

Sberbank of Russia and Tatneft, downgraded in November by 11.76 per cent, 7.88 per cent and 7.34 per points roubles, billion Tatneft Rosneft Gazprom Russia Mosenergo Rostelecom Sberbank of Gazprom neft GMK NotNikel Surgutneftegas RAO UES Russia cent accordingly. Lower decline rates were noted in the shares of Mosenergo ( by 6.43 per cent), LUKOIL (by 4.55 per cent), RAO UES of Russia ( by 3.43 per cent), Rosneft (by 3.17 per cent), Nornickel (by 1.68 per cent), Rostelecom (by 1.94 per cent). The only exception in terms of downgrading made the "Gazpromneft and Gazprom, whose shares went up by 4.83 and 3.99 per cent accordingly.

In October the MICEX turnover leaders8 were: Gazprom(34.3 per cent), Nornickel (19.8 per cent), RAO UES of Russia and Sberbank of Russia (14.2 per cent) and LUKOIL (11.5 per cent). Total share of transactions with the above companies shares made 90 per cent of gross turnover in the classical MICEX stock market.

In terms of capitalization, as of November 23, the top five leaders of the domestic stock market were9:

Gazprom (RUR 7291 bln), Sberbank of Russia Russia (RUR 2,114 bln), Rosneft (2,027 bln), LUKOIL (RUR 1,763 bln), GMK Norilsk Nickel(RUR 1,333 bln).

Futures and options market In November the investors activity in the MICES futures and options market has expressly decreased as compared with the preceding month. Thus, in that period the total turnover in the MICEX futures and options market amounted to approximately RUR 146.62 bln (335 transactions, 5.84 mln of contracts) against about RUR 289.17 bln (943 transactions, 11.35 mln of contracts) in October.

An adverse situation was observed in the RTS futures and options market, where the investors activity in November has expressly increased as compared with the preceding month. Thus, in the period from October 26 through November 23 the total turnover in the RTS futures and options market amounted to approximately RUR 1155.63 bln (1,519 thousand of transactions, 16.74 mln of contracts) against about RUR 784.bln (1,173 thousand of transactions, 12.58 mln of contracts) in October.

The greatest demand, as before, was for futures: the volume of trading in futures in the period under review was RUR 914 bln (1478.2 thousand of transactions, 13.32 mln of contracts). Options enjoyed a far lower demand, with the volume of trading at about RUR 241.63 bln (40.88 thousand of transactions and 3.mln of contracts). The highest level of trading in the futures market was RUR 109.28 bln (as of November 16), the lowest was RUR 41.71 bln (as of November 6).

FIG. Dynamics of corporate bond indices 122,ZETBI-Corp ZETBI-Corp120,118,116,114,112,110,108,Corporate bond market As of November results, certain decline was observed in the total volume of trading in corporate bonds (about 30 per cent) as compared with the preceding month. The total amount of payments under coupons has also decreased approximately by 20 per cent.

From October 26 through November 23 the price index of corporate bonds traded on MICEX10 has declined by 0.32 points (- 0.29 per cent), as well as the index of the ten most liquid corporate bonds, which .

According to RTS data.

The calculation was based on indices of corporate bonds traded on MICEX. The indices were produced by the Zenit bank.

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