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Wall Street Journal
November 14, 2001
Russian Equities Surges to a High Amid Optimism
Following Summit
By GUY CHAZAN
Staff Reporter of THE WALL STREET JOURNAL
MOSCOW -- Russian equities surged to a high for this year amid rising expectations for this week's U.S.-Russian summit and growing optimism about the domestic economy.
The benchmark RTS index rose 5.6% to 236.5, with shares in bellwether RAO Unified Energy System, Russia's electricity monopoly, rising 10% to 13.8 U.S. cents (15.4 European cents). The RTS index has risen 35% over the past six weeks and 80% since the start of the year, making Russia's the world's second-best-performing equity market this year, after China's.
Analysts say Russian President Vladimir Putin's unstinting support for the U.S.-led war on terrorism and his surefooted performance on the international stage since the Sept. 11 terrorist attacks on the U.S. have improved investor sentiment, long dogged by fallout from the 1998 default on Russian government debt and crash of the ruble. The RTS index is still at less than half its record of 570, reached in October 1997, but investors are taking heart that memories of Russia's burst bubble may be fading.
"U.S. investors are talking about Russia in a different way; suddenly it's 'our ally, our friend,' " said Roland Nash, chief economist at Renaissance Capital, a Moscow brokerage firm. "Now at last, new money is coming into the market," mostly from U.S. funds, he said.
This week's summit, at the White House and at U.S. President Bush's ranch in Texas, is expected to cement the new East-West rapprochement. Speculation has mounted that the two leaders will agree to slash their nuclear arsenals by up to two-thirds and reach a compromise on one of the biggest irritants in their relations, U.S. plans to build a national missile defense.
Traders say the growing threat of Islamic terrorism has increased Russia's attractiveness as an oil play. "Russia's natural resources are taking on added importance in a global sense, especially if there's further instability in the Middle East," said Martin Diggle, a director of Moscow bank Brunswick UBS Warburg.
One of the winners in Tuesday's rally was utility UES, which traders say is viewed as a hedge against investments in oil concerns. Analysts say there is renewed interest in the company after an aggressive roadshow in the U.S. and Europe by Chief Executive Anatoly Chubais and perceptions that it has improved its treatment of minority shareholders.
Unlike previous, more speculative, rallies, the latest surge in Russian stocks is based on strong fundamentals and a rosy macroeconomic picture, analysts said. Russia's economy is expected to grow 5.5% this year, the country has surpluses in its budget and its balance of payments, and the central bank's reserves are at a record.
The government also has been pushing through long-stalled reforms to reduce taxes, allow the sale of nonagricultural land and cut red tape, while further moves are planned to overhaul pensions, restructure the energy sector and modernize Russia's rickety legal system. Meanwhile, there has been a marked improvement in corporate governance at Russian companies.
"There's been a perceived rerating of Russia in the institutional investor community over the last few months," said Mr. Diggle of Brunswick UBS Warburg.
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