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17 Oct, 2008 09:51

Government share buy up looms, as markets cry out for cash, amidst worries about longer term

The Russian government will start buying top stocks as early as next week, using money from the national wealth fund. The country's Finance Minister said the State was forced to intervene after Billions of dollars flew out of the market over the last two

Foreign investors pulled an estimated $33 Billion out of the Russian economy in August and September.  That, combined with the side effects of the world financial crisis, resulted in huge losses on the local stock markets, forcing the government to intervene.

Finance Minister Aleksey Kudrin said  the government will start buying shares on the stock market next week.

“Foreign investors are massively selling Russian stocks. We will buy them.  The government will spend around $3 Billion from the National Welfare Fund on stocks of Russia’s leading and most reliable companies.”

Chris Weafer, Strategist at Uralsib says the Russian market is craving the presence of real money in the system and not just promises by the government.

“When we look at the $20 Billion that Prime Minister Putin promised was available to support the stock market, so far there is no evidence that that money, any portion of that money has actually come into the stockmarket, and we believe that one of the reasons for it is that the Government simply can’t figure out how to do it.  They are very reluctant to do it directly, because that would directly increase their holding in stocks like Gazprom, Sberbank and VTB, and they don’t want to do that.”

The government proposes enabling the Central bank to buy and sell Russian stocks, like the Bank of England in the UK. But Roland Nash of Renaissance Capital says that will inevitably boost the state's presence in the economy.

“The Government is going to have larger ownership stakes in companies and its going to play a larger role in the economy. I don’t think its just going to be in this country.  You know, if you look at the U.S. and the U.K. they’ve effectively re-nationalised a large portion of their financial sectors.”

Given the current situation, the state’s readiness to nationalise troubled banks and companies is a necessary guarantee of stability on the market. But business leaders are hoping that once the crisis subsides, the state will revert to its declared policy of encouraging private ownership.