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19 Sep, 2008 04:08

Stop start day as Russian shares soar

Trading on the RTS and Micex was halted on Friday morning with the indices jumping phenomenally in the first hour of trade, and then being stopped again for an hour mid-afternoon. Friday is the first day's trade after t

During this time the government announced a $45 billion cash injection into the financial system, and anounced additional measures to underpin the stock market.

The RTS key index gained more than 12 per cent and the MICEX index rose by more than 15 per cent, and at 11.05 Moscow time (07.05 GMT) both Russia’s major stock exchanges suspended trade in all shares.

They both reopened for trade about an hour later and when both exchanges were halted again for an hour, at about 14.00 Moscow time, the RTS was up 20% with the Micex up 25%.

The gains on the MICEX and the RTS stem from a sudden turnaround in both the domestic and global environment.  Since the closure on Tuesday the world's major central banks have anounced liquidity injections of more than $247 billion into financial markets. This may allay global fears of seizure of the financial system.

Investors around the world on Friday have been further heartened by moves in the U.S. and UK to crack down on short selling, a practice which is believed to have contributed to this week's fall of Lehman Brothers, insurance giant, AIG, and the buyout of Merrill Lynch, in the United States, and the merger between HBOS and Lloyds TSB in the United Kingdom.

This has buoyed markets around the world, with the Dow closing nearly 4 per cent higher in New York on Thursday, and Friday trade in Asia and Europe seeing exchanges posting major gains.

In Russia, the mood has been further lifted by the anouncement of measures to improve the liquidity of the local financial system, the reconciliation of the repo backlog from Monday and Tuesday, as well as the jump in oil and commodity prices.

Meanwhile, President Medvedev says Russia has enough resources to shore up Russian stock markets in the event of further losses.

Finance Minister Aleksey Kudrin promised to cut export duty on crude on October 1, saving Russian oil companies around $5.5 billion. He also pledged additional emergency loans.

“We've made the decision to ask the three banks – Sberbank, VTB and Gazprombank – to support small and medium-size banks… using budget money. They will also loan about $2.5 billion to the stock market…using equity as collateral. This will boost liquidity and stabilise the stock markets.”

On Wednesday the Central Bank slashed its reserve requirements for all commercial banks, leaving them with more cash to lend.

But it was unclear whether all these measures would be enough to reassure the stock market when it opened on Friday. Yaroslav Lissovolik, Chief Economist at Deutsche Bank Russia, was in confident mood.

“This is potentially one of the triggers for a turnaround in the financial markets, and, more specifically, in the stock market.  The amounts allocated by the government will be sufficient to stabilise the situation at least in the short term.”

The markets had already responded as Russian ADRs traded abroad moved into positive territory.

Russians take it easy

The current market tumble has left most Russians unfazed. There are hardly any queues at banks and exchange bureaus in Moscow. People aren’t in a hurry to take their money home or swap their roubles. And while the crisis is making the headlines, the Russians don’t seem to be panicking.

It seems Russia’s worst financial crisis for a decade hasn’t turned into a crisis of confidence among Russian market players.

Evgeny Tupikin is a financial adviser for a Moscow investment company, Broker Credit Service. He says:

“We have seen a significant increase in private clients. I think they assessed the situation: the market dropped more than 50% and this is a kind of a signal that slowly it will recover.”

And while the government says it has the resources to keep things stable, is there a sure fire way to avoid losing? Dmitry Babich from Russia Profile Magazine suggests that people diversify their investments.

“Invest not only in mutual funds, not just in one bank. Invest in as many ways as possible,” he says.

Babich says the current market tumble is nothing like the 1998 crash, when the ruble was devalued and many Russians saw their savings wiped out overnight.

Today people in the streets remain unfazed.

“I’m not worried. I’m hoping for the best,” a Muscovite says.

“It’s all artificial. It’s all exaggerated,” another one adds.

Andrey Stvolinsky, who became a market player a year ago, always checks the latest at the stock exchange, but now there isn’t much to check. The financial crisis has already cost him about $US 4,000.

“When I started playing on the market, I though that everything was going up. That’s what’s been happening for the past couple of years. But now everything’s dropped,” he says.

However, Andrey says his losses won’t stop him from investing and is still positive about his chances of making big gains.