Russian stocks in balance
London analysts say the performance of Russian equities and debt over the next 12 months will be a barometer of the country's economic and political development.
Suspended yesterday while voting took place in the second round of the Russian presidential election, markets were set to open again today.
On Tuesday, the share market was cautiously optimistic Boris Yeltsin would be re-elected and continue his reforms.
The Moscow Times Index rose only slightly while long-dated government bonds jumped as much as 8 percentage points to yield an effective 112 per cent, analysts said.
The difference was testament to the uncertainty in the run-up to poll results: the benefits of economic reform being recognised by investors, while rampant inflation and spiralling unemployment favouring communist challenger Gennady Zyuganov.
Over the past 12 months, the Moscow Times Index has surged 147 per cent, buoyed by economic reforms and strong interest from foreign investors.
On Tuesday however, traders reported foreign players had kept to the sidelines, and only the domestic market was active.
'In the short-term we're quite nervous,' Foreign and Colonial (London) chief investment officer Arnab Bannerjee said.
'We're expecting some profit taking . . . we think Yeltsin will win, therefore there will be a temporary surge in the market, leading to the opportunity to take some profits.' He said the real question lay with what followed.
The Russian stock market is still regarded as cheap, with a price-earnings multiple of two times 1996 earnings.
Individual corporate earnings are also very low, and some analysts still expect multiple expansion and earnings growth five to six times current levels.
One example was LUKoil, Russia's principal listed oil company.
It benefitted from the index rise on Tuesday, yet was still regarded as undervalued, producing oil at costs a fraction of its Western counterparts.
Providence Capital head of global fixed income Bob Attridge added that a much-feared Zyuganov victory may not be the horror some investors imagined it to be. 'I think the market will judge it very badly if [Zyuganov] wins. But in fact, there are very few people who really know what's going on,' he said.
Mr Attridge said Mr Yeltsin's economic reforms could prove to be sufficiently advanced so that any reverse would be difficult.
A communist victory may only mean a slowdown in the economy and return to some stability.
'These guys are good bureaucrats,' he said. 'Because of the change of direction, the reforms are still able to go on . . . only in a more ordered way.'