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In March 2000, the quotations of the majority of the Russian blue chips grew significantly (see Fig. 4). Except of the stocks of ‘Megionneftegaz’ that dropped by –3.76%. It was stocks of ‘Rostelecom' – 45.48%, ‘LUKoil’ – 42.47%, ‘Irkutskenergo’ – 35.64%, RAO ‘UES Russia’ – 35.49% and ‘Norilsky Nickel’ – 31.07%, quotations of which grew most appreciably. The sharp growth in stock prices for ‘Rostelecom' (during the two last months its stocks grew by 89.1% against 30.6% growth in the RTS Index for the same period) was caused by the fact that penalty of 1 bln. rubles imposed by the Moscow tax police in autumn 1998 was declined by the arbitration court.

Figure 4.

In March 2000, despite growing activity of participants at the market, the total share of the most liquid stocks in the structure of trades in the RTS practically did not changed. In particular, during the third week of February, the share of the five most liquid stocks made 74.92% against 75.91% registered in late March. At the same time, it is necessary to note that the composition of leading stocks by its share in the total turnover has changed at the market. For instance, in late March the share of RAO ‘UES Russia’ stocks in the total volume of trades was about 30.02% (35.24% in late February), the share of ‘LUKoil’ stocks – 23.82% (15.43%), the share of ‘Mosenergo’ – 8.84% (3.49%). A sharp growth in the share of ‘LUKoil’ stocks to a great extent was caused by the broadly announced fact disclosure of an oil field in Caspian sea. Moreover, that news burst out in the second half of March, with the sale of a 0.91% stake of State-owned share of ‘LUKoil’ at an auction.

In March 2000, the main factors which influenced the situation at the Russian stock market were as follows:

Firstly, the victory of V.Poutin in the first round of the presidential rally undoubtedly became a main event in early- 2000, and it lowered the level of political risks in Russia. Many investors had forecasted such a result, and the stock market began to grow. At the same time, in our view, the change in political situation has not yet had its impact on prices for the Russian stocks. Meanwhile, one should note actual consolidation of the executive and the legislative branches of power and the Russian top officials’ willingness to continue pursuance of economic reforms. It is envisaged that the new government economic program, which is due in May, should not present any unpleasant surprise to investors.

On the other hand, the problem of relationships between Russia and developed countries is still pretty sharp. Both domestic and foreign investors believe that the ongoing military operations in Chechnya affect the investment climate in Russia. Meanwhile, the end of the presidential rally yet in the first round allow higher chances for a compromise solution of finding the problem.

Secondly, the change in political situation in Russia and the improvement in dynamics of some macroeconomic indicators (namely, the tax collection) entailed the progress in the negotiations between Russia and the Paris Club, and Russia and the IMF on restructuring the Russian debt. In the former case, the political stance of Russia towards Chechnya can play an important role, since the negotiations with the Paris Club (in Autumn 2000) would be held at the inter-governmental level. As concerns the further negotiations, the programme of economic reforms developed by the Government becomes crucial item in Russia-IMF discussion agenda.

Thirdly, in March 2000, international oil prices experienced some drop. On the eve of the 109-th OPEC countries’ meeting, which took place in Vienna in late March, many of investors envisioned a drop in oil prices. At the meeting, it was decided to increase the limitations on oil extraction by 8.7% and the limitations on sales – by 6.3%. As a result, between February 28 to March 30, 2000 the price for the nearest future contracts on the Brent oil at the NYMEX dropped from 28.47 to 23.86 dollars per barrel, i.e. by about 16.2% (see Fig.5).

Nevertheless, it is important to note that this decision of the OPEC in fact did not affect the attractiveness of the Russian oil business for investments. Furthermore, the fall of international oil prices to the level of 23 – 25 $/barrel does not significantly endanger the situation with respect to tax revenues of the 2000 Federal Budget because in the respective provisions of the 2000 Budget Law the average price level for oil was set at about 18 $/barrel.

Figure 5.

Fourthly, in March 2000, the situation at the international financial markets had quite a contradictory influence on the Russian stock market. The contradictory dynamics of stock indices of both the developed and the emerging markets testified to the growing uncertainty in international investors’ preferences (see Tab.1).

At the same time, the investment risks at the international markets slightly dropped due to the US Federal Reserve’s decision effective as of March 21, 2000, to increase the discount rate by interbank overnight loans by 0.25 percentage points, up to 6.0% annualized. This decision was made regardless of actual forecasts, according to which the inflation processes in the US economy will stabilise. It is most likely that the Federal Reserve considered the factor of the envisaged drop in international oil prices. This fall in oil prices would lead to a drop in companies’ potential production costs. Thus, this process may result in a more significant growth in the US economy.

Table 1.

Dynamics of the Foreign Stock Indices

as of March 30, 2000

value

the change in value during the last week (%)

the change in value during the last month (%)

The Dow Jones Industrial Average (USA)

10980.25

-1.26%

5.91%

Nasdaq (USA)

4457.89

-9.77%

-9.30%

S&P 500 (USA)

1487.92

-2.58%

5.59%

Bovespa Index (Brazil)

17646.77

-3.73%

-5.29%

IPC Index (Mexico)

7604.490

-4.27%

-6.48%

IPSA (Chile)

99.67

-0.90%

-2.04%

Nikkei-225 (Japan)

20441.50

3.74%

2.58%

Straits Times (Singapore)

2116.81

-0.47%

-0.01%

Seoul Composite(South Korea)

889.95

2.57%

-0.55%

DAX-30 (Germany)

7644.89

-0.65%

-3.96%

CAC-40 (France)

6313.82

0.73%

-3.07%

Swiss Market (Switzerland)

7382.80

0.31%

5.09%

FTSE 100 (UK)

6445.20

-2.27%

-0.65%

ISE National-100 (Turkey)

15686.08

-10.05%

-6.54%

The interbank credit market. In February – March 2000 the interest rates at the market for ruble interbank loans were fixed at the level of 5–7% annualised (on ‘overnight’ loans, see Fig. 7). The increase in rates on actually given credits up to 25–30% annualised was observed only on the eve of the GKO auctions (on February 22) and on February 29. The latter was due to end-of-the-month effect. In March, the tendency to decline in rates prevailed, and by the end of the month even the highest rates (offer rates) fell below the level of 10% annualised.

Figure 7.

Foreign exchange market. Between February to March 2000, the situation at the Russian foreign exchange market stabilised. The growth in exporters’ supply of dollars bettered actual conditions allowing ruble’s strengthening. However, during the period concerned the Bank of Russia did not compensate for the increased supply of dollars with the respective growth in demand. As a result, between late February to late March the ruble exchange rate was growing against the growth in the CBR’s foreign reserves. Between March 1 to March 29, the average-weighted ‘today’ dollar exchange rate in the SELT fell from 28.638 rubles/$ to 28.266 rubles/$, i.e. by 1.3%. In late March, the situation at the foreign exchange market changed due to the OPEC’s decision to increase limitations on oil output and sales. The speculative growth in demand for dollars resulted in rise in quotations: on March 30, the ‘today’ dollar exchange rate in the SELT grew up to 28.46 rubles/$.

In February 2000, the official dollar exchange rate grew from 28.55 rubles/$ to 28.66 rubles/$ (see Fig.6). That corresponds to 0.39% a month, or 4.72% annualized. The ‘today’ dollar exchange rate in the SELT grew from 28.5523 rubles/$ to 28.6534 rubles/$, i.e. by 0.35% a month (4.33% annualized). The ‘tomorrow’ dollar exchange rate grew from 28.6287 rubles/$ to 28.7005 rubles/$, i.e. by 0.25% a month (3.05% annualized).

In March 2000, the official dollar exchange rate dropped from 28.66 rubles/$ to 28.46 rubles/$, i.e. by 0.7%. According to preliminary estimations, in March the ‘today’ dollar exchange rate in the SELT dropped from 28.6534 rubles/$ to 28.4622 rubles/$ (as of March 30), i.e. by 0.67% a month. The ‘tomorrow’ dollar exchange rate fell from 28.7005 rubles/$ to 28.5405 rubles/$ (as of March 30), i.e. by 0.56%.

In March 2000, the trading volumes in the SELT did not change significantly. According to the preliminary estimations, in March the overall trading volume of the most liquid ‘today’ and ‘tomorrow’ contracts made up 97.170 bln. rubles and 86.500 bln. rubles, respectively. If so, the total volume of turnover by these contracts in the last month should be at about 2.5% inferior to the respective index registered in February 2000.

Figure 6.

The continuing drop in the exchange rate of European currency to dollar, which made up about 1.8% in March 2000, manifested itself in the change of the growth in ‘euro/ruble’ rate. During the last two months the official ‘euro/ruble’ exchange rate dropped by 3.9%. At the same time, during the last months, the investors’ interest in this segment of the financial market was growing steadily. According to preliminary estimations, in March the total trading volume by ‘today’ and ‘tomorrow’ contracts on euro in the SELT made up 3.06 bln. rubles. That is at about 37% superior to the respective index registered in February 2000.

In February 2000, the official euro exchange rate dropped from 28.23 rubles/euro to 27.44 rubles/euro, i.e. by 2.8%. The ‘today’ euro exchange rate in the SELT fell from 28.0687 rubles/euro to 27.8276 rubles/euro, i.e. by 0.86% a month. The ‘tomorrow’ euro exchange rate dropped from 28.08 rubles/euro to 28.00 rubles/euro, i.e. by 0.28% a month (see Fig.7).

In March 2000, the official euro exchange rate dropped from 27.44 rubles/euro to 27.13 rubles/euro, i.e. by 1.13%. According to preliminary estimations, in March the ‘today’ euro exchange rate in the SELT fell from 27.8276 rubles/euro to 27.1989 rubles/euro (as of March 30), i.e. by 2.26%. The ‘tomorrow’ euro exchange rate in the SELT dropped from 28.00 rubles/euro to 27.1807 rubles/euro (as of March 29), i.e. by 2.93%.

Figure 7.

Table 2.

Indicators of Financial Markets

month

November

December

January

February

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