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2.0 2.15. 8.1 5.7.7. 10. 11. 12. 01. 02. 03.

4.8. 1.9.

7.0 8.0 9.0 10. 11.

2.0 3.800 9.0 2.0 1.02 02 02 02 03 03 02 2 2 2 02 3 2 2 M oney S upply (RUR Billion) F oreign Reserves (US $ B illion) Fig. S. Drobyshevski, P. Trunin Financial Markets The Market for Government Securities In March a correction of prices was observed at the market for Russian external debt. Bond quotations decreased 0.5 to one percent. It should be noted in this connection that quotations were growing during the first half of the month. The growth of Brazil's bonds brought about by the IMF's consent to extend another US$ 4.1 billion as part of the US$ 30 billion aid programme entailed a price increase in eurobond markets in other countries, including Russia. News of new record amounts reached by the foreign reserves also added to investors' optimism. When the military action began, some of the players preferred to fix the profits, which resulted in reduction of the prices of Russian securities. The decrease in prices for 'black gold' due to the war in the Gulf was another important factor that made the players take their funds out of the Russian segment of the debt market and invest them in other emerging markets. Price reduction leaders are Minfin, 7th tranche (1.67 percent); Minfin, 5th tranche (-1.1 percent); Rus-05 (-0.91 percent); Rus-07 (-0.68 percent); Rus-28 (0.55 percent).

RUR Billi In March the RF Ministry of Finance repaid US$ 1.48 billion out of the Russian external debt (repayment of the principal amount: US$ 650.85 million; interest payments: USED 832.15 million).

A number of various factors affected the pricing process in the Rouble bond market in March. On the one hand, large amounts of free Rouble liquidity and lack of alternative instruments determined the sable demand in the internal debt market and the decreasing offer of government securities. On the other hand, as a result of low yields in the market, players start to lose interest in the government debt. The first two weeks Rouble bond quotations were increasing and their weighted average yield was decreasing.

Minfin Bonds. Yield to Maturity in December, 2002, - March, 2003 9.5% Tranche 4 Tranche 5 Tranche 6 Tranche 8.5% 7.5% 6.5% 5.5% 4.5% 3.5% 2.5% Fig. 1.

2003, 2007 2028 . 2002 - 2003 10,5% 9,5% 8,5% 7,5% 6,5% 5,5% 4,5% 3,5% 2,5% 1,5% USD-2003 USD-2007 USD-Fig. would like to mention the auction on March 5, in which three issues were placed worth a total of RUR 22 billion, including the 'longest' issue OFZ-AD 46014 that matures in 2018. The high level of funds secured the auction's success. Participants' interest in the new security 46014 was especially high, with demand exceeding the offer by RUR 2 billion. The total issue was RUR 10 billion, and the Ministry of Finance has placed over 83 percent to the amount of more than RUR 8 billion. The weighted average yield of OFZ-AD 46014 at the auction was 9.7 percent p.a., which corresponded to the yield of OFZ-AD 46002 reached at the auction on March 4. The REPO auction and deposit auction held by the Russian Federation Central Bank on March 6 aimed at binding excessive RUR liquidity failed to affect the market significantly. On the whole, at the auction of March 7, the weighted average yield was 9.07 percent p.a. in the OFZ-PD segment and 8.percent p.a. in the OFZ-AD segment. The auction turnover was cca. RUR 7.4 billion during the first week of March and RUR 5.2 during the second week of March.

After the military action in Iraq began, a correction in the foreign currency segment of the bond market was followed by a correction in the Rouble segment of the government debt market; 'long' securities led the reduction. However, by 20-21 March prices for Rouble debentures started to grow again, and on March the weighted average market yield was 8.96 percent p.a.

As at March 25, the volume of the GKO-OFZ market was RUR 269.6 billion in nominal terms (RUR 282.1 billion in money terms). The duration of the market portfolio was 761.5 days.

The Market for Corporate Securities The Stock Market. In March the index of the Russian stock market and leading indices of the developed countries moved in different directions. Positive domestic news, a considerable inflow of petrodollars and the uncertainty prevailing in Western markets resulted in investors' interest to the Russian stock market. In the beginning of March the RTS index demonstrated excellent results amid the reduction of the main Western indices. However, after the military operation in Iraq commenced, priced on the oil market stabilised at a level below US$ 28 / barrel. Stock indices of the developed countries leaned on their historic lows, while the Russian index, 70 percent of which depends on the oil market, began to 'lose weight'.

During the month, the RTS index diminished 4.86 percent, reaching 364.61 points on 26 March.

The trade volume increased in comparison with the previous month, reaching US$ 269 million. The average daily volume amounted to US$ 15.8 million. The dynamics of the RTS index may be subdivided into three periods. During the first week of March the volume of auctions was significant (average daily amount: US$ 22 million) and the stock indicator demonstrated growth.

The highest index value, observed on March 6, was397.47 points4 (3.7 percent as compared with the end of February). Then the stock indicator began to decline abruptly, reaching on 18 March the month's lowest level, 362.58 points. Thereafter the index stayed in the range of 363-369 points. The end of the month was marked by very low turnover values (less than US$ 10 million per day). The lowest trade volume, US$ 3.9 million, was observed on 26 March; the highest trade volume, US$ 26.9 million5, was observed on 18 March. Such index dynamics have been caused by the military action in Iraq.

Despite the positive quotation dynamics in the first half of the month, during the period under review shares of the majority of the Russian blue chips showed weaker results than expected. As at 26 March, the Mosenergo shares were again the growth leaders with 25.53 percent. The RAO UES stock followed with 2.83 percent. The prices for shares of MMC Norilsk Nickel (0.42 percent), Sibneft (0.35 percent) and Tatneft (0.34) remained practically unchanged. Prices for the stock of Gazprom (-1.94 percent), Rostelekom (-2.percent) and Sberbank (-2.64 percent) somewhat diminished. Th largest oil companies Lukoil (-6.percent), Surgutneftegas (-7.79 percent) and Yukos (-12.56 percent) formed the March outsider group.

Mosenergo's quotations whirled upward owing to buying up of its shares by strategic investors.

During the period under review common stock of RAO UES again accounted for the highest proportion in the total turnover on the RTS (22.94 percent as against 30.43 percent in the previous month). Lukoil's stock took the second place by turnover, reaching 17.55 percent in March (against 15.47 percent in February). Yukos's stock retained the same proportion of 16.47 percent (16.percent), that of Surgutneftegas was 9.73 percent (7.69 percent), and of Mosenergo, 7.08 percent The highest value since 27 May, 2002.

The highest value since 26 September, 2002.

(5.43 percent). The total proportion of five most liquid securities in the total March RTS turnover somewhat diminished, reaching 73.77 percent (February: 75.56 percent).

Trade Volume ($) RTS Index Fig. Dynamics of Russian blue chip quotations from 28 February till 26 March, 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% Change in Price (%) Fig. In the period from 1 till 26 March the volume of trade in Gazprom shares via RTS terminals grew 1.times as compared with the previous period, reaching US$ 133.5 million (or cca. 161 million shares). A total of 8.6 deals with the company's shares have been concluded.

USD Million In March the five top Russian companies by capitalisation (according to RTS) remained the same as in February: Yukos, US$ 21.5 billion; Gazprom, US$ 19.2 billion; Lukoil, US$ 11.8 billion; Surgutneftegas, US$ 10.5 billion; and Sibneft, US$ 10.3 billion.

The market for term contracts. The turnover in the FORTS market for term contracts exceeded RUR billion (56.14 thousand deals, 2.22 million contracts) in March. Futures contracts accounted for RUR 9.billion (54.47 thousand deals, 2.18 million contracts) in that amount. The highest trade volume was observed on 20 March: RUR 754 million (1.49 million contracts, 3946 deals). The average daily turnover was more than RUR 590 million.

On 17 March, 2003, March futures contracts were executed. The amount of executed liabilities was RUR 178 million. The highest execution volume was observed for the futures contract on RAO UES stock: RUR 72 million.

On 17 March, instead of settlement futures contracts for the common stock of RAO UES, OAO Surgutneftegas and OAO Rostelekom, delivery contracts for these shares, to be executed in September, 2003, were introduced.

External factors affecting the dynamics of the Russian stock market. On March 6, the European Central Bank announced it was reducing the base rate by 0.25 percentage points. Thus, the new base interest rate in the European Union was fixed at 2.5 percent.

The main US stock indices once again hit historic lows. On 11 March, DJIA closed at 7524.06, and the hitech NASDAQ reached 1271.47 points. European indices also went down to the lowest levels in six years, and NIKKEI fell below 8,000 points, reaching the 7862.34 mark, which is the lowest value since January, 1983.

Following the beginning of the military campaign in Iraq, stock indices on the world's leading floors began to grow. During the first week of war DJIA demonstrated the quickest weekly growth since 1982, and NIKKEI grew to the highest mark in four months. On the whole, from 28 March till 24 DJIA grew 4.percent, NASDAQ, 2.41 percent, and NIKKEI, 0.86 percent.

The instability in connection with Iraq, high oil prices and the unfavourable situation in the labour market resulted in a significant reduction of the Consumer Confidence Index in the USA. The preliminary report by the Michigan University states that the Index sank to 75 points. This value is the lowest since 1992, when the Index hit 73.3 points.

The US Federal Reserve System decided in its meeting on 18 March to leave the interest rate at 1.percent, the lowest level in 40 years. We would like to remind that previously the US Fed decreased the federal funds rate by 0.5 percentage points in November, 2002.

200% Dow Jones Industrial Average Nasdaq Composite 180% RTS Index 160% 140% 120% 100% 80% 60% 40% 01.02.200203.200204.2002 23.05.200206.200207.200208.200209.2010.10.2002 04. 31. 02 24.02.04. 01. 27.04.2002 20. 18. 15. 12. 02 07.11.200212.200212.2027.01.Fig. Prices for Brent crude oil, USA (NYMEX) 01.02.20006.03.20009.04.20022.05.20024.06.20024.07.2002 2 2 2 2 3 2 2 2 2 2 22.08.20027.09.20030.10.20003.12.20015.01.20014.02.20020.03.Fig. Corporate News OAO Mosenergo Mosenergo published a report on its operations for 2002. The net profit in 2002 amounted to RUR million, dropping to almost one third of this indicator in 2001. The reasons for the significant profit reduction include a delay in the introduction of new tariffs by the Moscow Regional Power Commission and a considerable growth of amortisation deductions due to revaluation of the fixed assets.

The company's gains from realisation of commodities reached RUR 54 billion in 2002. The profit from sales reached RUR 4.6 billion in 2002. On the whole, the profitability of power production reached 9.percent in 2002. In 2001 this indicator amounted to 25 percent.

OAO Sibneft.

Sibneft's Board of Directors recommended the Annual Meeting of Shareholders to pay a dividend of US$ 0.23 per one share; this corresponds to a total of US$ 1.09 billion. Market participant reacted to this news with animation: a virtual boom in demand for Sibneft's securities was observed in the RTS that day; in the course of the day they grew 7 percent as compared to the previous day's closing value.

Standard & Poor's announced that is revised the forecast of Sibneft's rating, upgrading it from Negative to Stable. At the same time, S&P's confirmed the company's long-term credit rating and the rating of its priority unsecured liabilities at B+. Analysts say that the factors contributing to the revision include the decision to divide the assets of the oil company OAO Slavneft with TNK, to sell Sibneft's minority blocks of ONAKO and its key production subsidiary Orenburgneft. In this connection S&P's also upgraded the company's national rating from ruA+ to ruAA-.

ZAO AK Alrosa Standard & Poor's announced that it upgraded the long-term credit rating of the Russian diamond production company ZAO AK Alrosa from B- to B since the company obtained a five-year quota on export of diamonds; forecast: stable.

The agency's representatives point out that the upgrading reflects the obtaining of the quota (that will make the sales more predictable), the improving operational conditions in Russia and better access to global markets as well as the progress that the company made in deep mining.

OAO Mobile Telesystems Standard & Poor's announced that it included OAO Mobile Telesystems' corporate governance rating (7.4) in the GovernanceWatch list, forecast: developing. This happened after AFK Systema, which owns 40.percent of MTS's shares, announced that it had concluded an option agreement with T-Mobile International AG (a subsidiary of Deutsche Telekom AG), which owns 40.1 percent of MTS's shares, on a possible buy US Dollars / barrel out of 10 percent of its shares in MTS's capital. According to the terms and conditions of the option agreement, AFK Systema shall be entitled to acquire the said share at market value at any given time before 30 September, 2003. In the beginning of the month Deutsche Telekom also announced that it intended to sell another 5 percent of MTS stock on the stock market. If both deals take place, the share of AFK Systema will grow up to 55.4 percent, and the share of Deutsche Telekom will diminish to 25.1 percent.

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