Russian stocks rocket amid market volatility
Saturday, 20 September 2008

AFP, MOSCOW - Russian shares soared Friday, regaining much of the value they lost earlier this week, after the government injected tens of billions of dollars into the markets to stave off a financial massive crisis.

The main RTS index had gained 22.39 percent by the end of trading while the MICEX shot up 28.69 percent, restoring the values seen before Tuesday, when both suffered their worst one-day fall since the 1998 financial crisis.
 
Trading was suspended twice during the day because share prices rose too quickly, under a rule that any fluctuation of more than 10 percent in either direction would require a freeze.
 
The recovery was due to government moves to address a "panic element," said Chris Weafer, chief strategist for the Moscow-based investment bank Uralsib, adding that he saw Friday's gains as sustainable.
 
"The government has taken actions and been very effective in what they put in place," Weafer said.
 
Both the MTS and the MICEX had been suspended for all of Thursday, most of Wednesday and an hour of Tuesday as officials scrambled to come up with a rescue plan amid fears of a dangerous erosion of confidence in Russian banks.
 
Officials on Friday praised their response and stressed Russia's progress since the devastating crisis of 10 years ago, which led to a collapse of the banking sector, runaway inflation, huge capital flight and social unrest.
 
Russia "now has a completely different level of development of its economy and its financial system, a different, qualitatively higher level of stability," Prime Minister Vladimir Putin told investors at a conference.
 
Putin also said Russian stocks were still "strongly undervalued."
 
But London-based international credit rating agency Standard and Poor's said in a statement on Friday it was downgrading its outlook on long-term sovereign credit ratings for Russia from "positive" to "stable."
 
"The outlook revision is based on growing uncertainty regarding Russia's economic policy response as the liquidity crisis in its financial markets has deepened," credit analyst Frank Gill said in the statement.
 
Finance Minister Alexei Kudrin on Friday said that the government would buy shares in companies, above all state-owned firms like Gazprom and Rosneft, in the latest move by officials to boost confidence.
 
At an emergency Kremlin meeting on Thursday, President Dmitry Medvedev said stability on the financial markets was the government's "most important priority" and promised 20 billion dollars to boost liquidity.
 
That came on top of an earlier pledge by officials to inject 44 billion dollars to prop up the banking system.
 
"The measures that were taken by the government and the Central Bank, they were coordinated, joined-up policy making. That's what the markets were waiting for," said Roland Nash from Renaissance Capital, an investment bank in Moscow.
 
"Unfortunately for Russia, it still depends on what happens in the US but at least we're moving towards normalised trading conditions, which is positive," said Nash, who is head of research at the bank.
 
Both the dollar-denominated RTS and the ruble-denominated MICEX on Tuesday suffered their biggest one-day losses since 1998.
 
Analysts however have cautioned against drawing too many parallels between then and now, noting that Russia is today virtually debt-free, boasts massive currency reserves and has a more diversified economy than a decade ago.
 
Putin said this week that the main economic indicators were "normal" and that Russia could use its oil and gas riches to support financial markets.
 
The Kremlin's top economic advisor, Arkady Dvorkovich, made clear on Friday that the government had a range of ideas for coping with market volatility.
 
"Systemic problems will be resolved and there will be no shocks," Dvorkovich told reporters. "The state will act quickly" whenever needed, he said.
 
In an address to parliament, Finance Minister Alexei Kudrin on Friday estimated GDP growth this year could rise to as high as eight percent.
 
Before the trading day started Friday, the irreverent tabloid Tvoi Den published a caricature depicting a plunging stock index beside Kudrin holding a bag of cash over a caption that read: "Maybe I should try some more viagra?"

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