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The Moscow Times: Nervy Investors Halt Market’s Record Run

Hambro has yet to recover almost 12 percent of the value it has lost since Oleg Mitvol, the deputy head of the agency, first accused it of misconduct on Nov. 29.

Monday, December 18, 2006. Issue 3563. Page 8.
By Simon Shuster
Staff Writer

All good things must eventually end, and so it was last week for the 14-day run of positive numbers on Russian markets, which analysts said could now expect to be less liquid and more volatile as the holiday season begins.

On Tuesday, the RTS was down 0.7 percent and the MICEX dipped 0.1 percent, but both finished the week in positive territory as investors’ worries were eased.

“Russians are born traders but not born investors,” said James Beadle, research head at Pilgrim Asset Management. “They jump in and out very quickly and take a profit if something makes them nervous.”

What made them nervous last week, and sparked the impending downturn, were the meetings of the U.S. Federal Reserve on Tuesday and the Organization of Petroleum Exporting Countries, or OPEC, on Thursday. But neither one had a decidedly negative outcome.

The Fed surprised no one on Tuesday by holding interest rates at 5.25 percent and reiterating concerns over a slump in the U.S. housing market. The same day, however, U.S. reports of a 1.1 percent jump in November retail sales outshined much of the gloom in the Fed’s statement and raised hopes that the correction expected for U.S. markets would be gradual.

“I am positively convinced that it will be a soft landing,” Beadle said. “It is taking place right now.”
 
The fears leading up to the OPEC meeting turned out to be emptier still, as the oil-producing countries announced further supply cuts, which promise to sustain high oil prices and bolster the Russian economy. The cuts will be imposed in February, paring a half-million barrels off the cartel’s daily output. But OPEC has often failed to follow through on such pledges.

“I can’t say that we have a lot of belief in OPEC’s ability to move its production up and down,” said Rory MacFarquhar, economist at Goldman Sachs.

Analysts agreed, however, that Brent crude prices would stay above $60 per barrel well into next year and should allow Russian oil firms, which have taken a back seat to banks and utilities in recent weeks, to go back to driving the economy in 2007.

The next few weeks, however, may be a period of modest trading but higher than usual risk.

“As investors drift off toward holiday vacations, it takes only a few people to move the markets, and that can make for some real volatility,” said Kim Iskyan, head of research at MDM Bank. “It’s an odd contradiction of the holiday doldrums.”

The Central Bank and Finance Ministry decided last week to allow foreigners to buy stakes of up to 20 percent in Russian banks without state authorization. Natalya Orlova, head of research at Alfa Bank, said in a note to investors Thursday that the move would encourage banking sector IPOs in the long run.

But since the move was foreseen as part of Russia’s deal with the United States on joining the World Trade Organization, it will not have a short-term impact on the market, MacFarquhar said.

Peter Hambro Mining (POG.LN) had another roller coaster week, losing 22.9 percent of its value Monday and Tuesday as checks on all but one of its Russian licenses were reportedly under way. By week’s end, however, the stock had recovered 21.2 percent after the agency that was conducting the inspections agreed to ease its scrutiny. Hambro has yet to recover almost 12 percent of the value it has lost since Oleg Mitvol, the deputy head of the agency, first accused it of misconduct on Nov. 29.

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