The MICEX SE share market
Two periods of market movement can be seen in February. The first period, during which the market maintained it neutral state, lasted till the middle of the month and was followed by the period of upturn in the second half of the month. As a result of February, the MICEX Index grew 10.4% to 635.38 points. The blue chips of February were the common shares of Rostelecom (18.7% growth), Sberbank (13.5%), LUKoil (10.9%), Norilsk Nickel (10.6%), Surgutneftegaz (10.1%) and RAO UES (5.3%). The common shares of Mosenergo dropped by 8.6%.
The common shares of YUKOS went up by 34.6% and showed record growth among the actively traded securities.
In February, the activity of market participants increased against January. The total turnover of operations in stocks amounted to 217.4 billion rubles. The average daily turnover of trades grew by 31% to 11.4 billion rubles. In February, the turnover of REPO operations in stocks amounted to 25.8 billion rubles or 11.9% of the total turnover of operations in stocks. The turnover of operations in the negotiated deals mode amounted to 36.6 billion rubles or 19.1% of the turnover of secondary trades in stocks.
The MICEX SE market of corporate and regional bonds
In the sector of corporate and regional bonds the activity of investors increased against January.
The most liquid issues showed slow growth of quotations. The Corporate Bonds Index RCBI-c, after increasing by 0.89% in January, grew by 1.06% in February and amounted to 128.23 points at the close on 28 February. The MICEX Corporate Bonds Index (RCBI) increased by 0.37% and amounted to 103.83 points.
As a result of the month, the total volume of transactions in corporate and regional bonds amounted to 157.4 billion rubles, of which 125.5 billion rubles (79.7%) was accounted for by secondary trades, 19.8 billion rubles (12,6%) - by REPO transactions and 12.1 billion rubles (7.7%) – by new placements (Gazprom, Elemte, Kamskaya Dolina - Finance, IS-Leasing).
In February, in the structure of the exchange turnover of bonds, the share of corporate bonds decreased to 55.6% of the total turnover (87.5 billion rubles), the share of regional issues grew to 42.3% (66.6 billion rubles), while the share of municipal bonds remained almost unchanged and amounted to 2.1% (3.3 billion rubles). As compared with January, the total trading volume in the sector of corporate and regional bonds grew 2.1 times.
In February, the yields of most liquid issues of corporate and regional bonds decreased. In particular, yield on the bonds of MosGorZaim (the 39th issue) decreased by 0.23 points, yield on the bonds of MosGorZaim (the 37th issue) - by 0.26 points, yield on the bonds of MosGorZaim (the 38th issue) - by 0.39 points, yield on the bonds of Moscow region (series 25004) - by 0.51 points, yield on the bonds of Gazprom (series A5) - by 0.43 points and yield on the bonds of Gazprom (series A3) - by 0.57 points
The government securities market
In February, the Government Bonds Index (RGBI) decreased by 0.14 points to 113.48 points. The Total Revenue Government Bonds Index (RGBI-tr) grew by 0.87 points to 142.74 points. The gross yield to maturity of government bonds (RGBY) grew by 0.18 points to 7.58% of yearly interest. In the secondary market the average weighted yield of the most liquid issues changed within the range of (-0.32) to (+0.15) points.
The total volume of trading in the government securities market amounted to 52.9 billion rubles (with accumulated coupon income), which is 39.3% more than in January. The volume of secondary trades dropped 22.1% to 19.8 billion rubles. Of the total volume of exchange trades, the sector of OFZ-FD accounted for 51.1% of the turnover of the secondary market, the sector of OFZ-AD – 27.5%, the sector of OFZ-PD – 17.6%, while transactions in the bonds of the Bank of Russia accounted for 3.8%. The volume of inter-dealer REPO operations amounted to 6.1 billion rubles. In February, the volume of placement of securities at the Finance Ministry auctions amounted to 23.3 billion rubles, the volume of sale of securities at exchange modified REPO auctions with OFZ and the sale of the bonds of the Bank of Russia in the framework of reverse modified REPOs amounted to 3.8 billion rubles.
The foreign exchange market
In February, the exchange rate of the dollar against the ruble decreased by 41 kopecks (-1.5%), the exchange rate of the euro grew by 11 kopecks (0.3%): on 28 February, exchange rate of the dollar with today settlements in the UTS amounted to 27.6956 rubles/1 dollar, while the exchange rate of the euro amounted to 36.7355 rubles/1 euro. The average daily turnover of the dollar-denominated instruments decreased by 11.9% to 1.8 billion dollars, while the turnover of the euro-denominated instruments decreased by 32.4% to 7.5 million euros a day. The total turnover of the foreign exchange market increased by 11.6% and amounted to 40.9 billion dollars. The bulk of operations (99.5%) was accounted for by “dollar-ruble” instruments (29.9% - transactions with today settlements, 51.7% - transactions with tomorrow settlements, 17.9 – SWAP operations). The volume of operations in the European currency amounted to 0.5% of the total volume of trades. In February?, the share of transactions concluded through regional currency exchanges amounted to 3.1% of the total turnover in the UTS.
The standard contracts market
In February, the total turnover of trading in futures contracts on the US dollar amounted to 4.3 billion rubles or 153 000 contracts. The daily average trading turnover decreased against January by 43% and amounted to 225.8 million rubles. The volume of open positions at the end of February amounted to 314 300 contracts (over 314 million dollars), having increased by 12% against the end of January. Of those, 96 400 contracts were accounted for by March 2005 contracts, 92 000 – by April 2005 contracts, 79 900 – by May 2005 contracts, 36 000 – by June 2005 contracts and 10 000 – by July 2005 contracts.
Comment on the situation:
In the first half of February, the MICEX SE share market was in the sideways trend, which could be seen after the noticeable growth connected with Russia’s obtaining an investment grade rating from Standard & Poor's.
The market was supported by positive news about Svyazinvest and the telecom segment as a whole. The Government’s privatization plan does not imply changing the composition of the company. In particular, Rostelecom will not be detached from Svyazinvest. Besides, S&P raised the long-term rating of Rostelecom to "?+" with stable forecast. The market was also supported by President V.Putin’s statement that tax checks in Russia should be streamlined while the control procedures should be simplified.
Another good news for the market was the successful IPO of AFK Systema Company in London. Houston court’s refusal to investigate the YUKOS bankruptcy case promoted the rapid growth of the market in the second half of the month. The reduction of the risk of lawsuits promoted the growth of quotations of shares and ADRs of Russian companies.
In February, world leading stock markets went up. In the USA, DJI? grew 2.6%, while the NASDAQ Composite index dropped 0.5%. In Europe, DAX grew 2.2%, while FTSE 100 - by 2.4%. Nikkey grew 3.1%.
In the beginning of February, the sector of corporate and regional bonds was affected favorably by Finance Minister A.Kudrin’s statement that the acceleration of inflation may force the CB to make changes in its money and credit policy. The statement promoted the strengthening of the ruble and the growth of demand for ruble-denominated instruments. Besides, the absence of new bond placements since the beginning of the year promoted the accumulation of demand, which was given vent at auctions to place the new (the 41st and the 42nd) issues of MosGorZaim. The transfer of the placement of the new issue of Gazprom from the 8th to the 15-17th of February increased the demand for first-tier bonds.
In the middle of the month, the market reached it price ceiling and moved into the sideways corridor. Further decrease of yields was restricted by the level of yields on government bonds. The increase of interest rates on US 10-year Treasuries, which followed Alan Greenspan’s statement that 2.5% interest rates were still too low and that the US Federal Reserve would continue to gradually raise them to levels which are neutral to inflation, did not affect the debt market negatively. The strengthening of the exchange rate of the ruble to the US dollar was accompanied by certain stabilization of quotations, which was also promoted by the absence of strong fluctuations of the volume of ruble liquidity.
At the end of the month, in the absence of considerable placements, participants’ attention was focused on the secondary market, where quotations grew noticeably as a result of the growth of the ruble against the dollar and a rather high level of ruble liquidity.
The activity of the secondary market of government securities remains low: in February, its turnover was 1.7 lower than the average monthly level in 2004. At the same time, at auctions, the volume of placement was 1.9 higher than the average monthly volume in 2004. Prices did not change much on the external debt market: the quotations of indicative Russian eurobonds with redemption in 2030 increased by 0.5 points to 106% of the face value. The bad news for the Russian securities was the fact that Paris Club in its talks about Russia’s early repayment of its debt refused to discount Russia’s debt and demanded a premium for early repayment. In February, Russia paid Paris Club about 1.6 billion euros in principal and interest payments. The next round of talks will be held in early March.
In the medium term, the decrease of Russia’s foreign debt must affect favorably the market of government securities. President V.Putin has spoken in favor of the early repayment of the country’s foreign debt. According to Finance Minister A.Kudrin, as of the beginning of 2005, Russia’s foreign debt amounted to 115 billion dollars, while the level of the debt service rate amounts to 7% to 13%, which is 3 to 4 times more than in the countries of G-8.
The state of the currency market was determined by several important events, including: S&P’s upgrading of Russia’s rating to the investment grade level, the increase of the US standard rate of interest to 2.5%, sharp fluctuations of the rates of main currencies and the growth of oil prices in the world market. Holiday days-off put additional load on the market, which resulted in the irregularity of the inflow of export receipts and the growing volatility of exchange rates.
February was marked by the new strengthening of the ruble against the dollar. During the month, the exchange rate of the ruble against the dollar grew by more than 40 kopecks (1.5%) to 27.70 rubles/1 dollar. The tendency was promoted by the statements made by government officials about the necessity to refuse from restricting the growth of the exchange rate of the ruble due to the negative impact of this measure on the inflation, which, according to preliminary estimates, will reach 3.7-3.9% in the first two month over 2.8% in 2004.
The exchange rate of the euro continues to depend on the world market situation. During the month, after growing on FOREX from 1.30 to 1.32 dollars/1 euro, the euro grew in the Russian market by 11 kopecks and reached 36.74 rubles/1 euro.
In February, the Bank of Russia announced the transition to the bi-currency basket, containing the dollar and the euro. However, one should not expect any considerable shifts in the dynamics of main currencies’ exchange rates, as the proportions of the dollar (0.9) and the euro (0.1) reflect the existing practice. Any changes are possible only after the increase of the euro’s share in the basket. The growing volatility of main currencies’ exchange rates secures participants’ increasing interest in the derivatives market. In February, trades in futures on the exchange rate of the euro to the US dollar were launched in the MICEX standard contracts market.
