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Cablegate: Russian Stock Exchanges Still Down After Storm

VZCZCXYZ0040
PP RUEHWEB

DE RUEHMO #0841 0591459
ZNR UUUUU ZZH
P 281459Z FEB 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 7764
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS MOSCOW 000841

SIPDIS

SIPDIS
SENSITIVE

STATE FOR EUR/RUS, EEB/IFD
TREASURY FOR BAKER/GAERTNER
NSC FOR TRACY MCKIBBEN
USDOC FOR 4231/IEP/EUR/JBROUGHER

E.O. 12958: N/A
TAGS: EFIN ECON RS
SUBJECT: RUSSIAN STOCK EXCHANGES STILL DOWN AFTER STORM

1. This message is sensitive but unclassified, and not for
internet distribution.

2. (SBU) The apparent sharp increase in emerging market risk
aversion that sent Shanghai's stock market tumbling on
February 27 was also manifest among Russian equity markets.
The benchmark dollar-denominated RTS Index fell 3.28 percent,
and the broader, ruble-denominated MICEX Index was down 4.1
percent. Trading volumes were 63 percent higher than the
4-week average.

3. (SBU) Just before the end of trading on February 28, the
major indices repeated the same general magnitude of the
previous day's slide, with the RTS down 3.5 percent and MICEX
down 3.8 percent. Many of our market analyst contacts have
called the share-price drop a "spring bull-market
correction." United Financial Group Chief Economist Yaroslav
Lissovolik noted that the underlying fundamentals are
generally sound and, in some cases, improving. He said that
steel producers, for example, have garnered stock
recommendation upgrades among many investment houses as a
result of their enhanced cost controls in recent months. He
characterized the price drop for Novolipetsk Steel (-6.8
percent) and Severstal (-4 percent) as profit-taking. Troika
Dialog Chief Economist Evgeny Gavrilenkov echoed this
assessment, equating the correction with the liqudity squeeze
that caused a similar decline in Russian equities during May
2006.

Comment
-------

4. (SBU) Ongoing questions about the underlying quality of
emerging market assets could translate into a short-term
selloff of Russian stocks during the next two months. Retail
investors in the country's growing mutual fund market may
even lead the way down as they wait for the proverbial dust
to settle. Many of the analysts we talked with, however,
maintain a bullish outlook for Russian stocks in 2007.
BURNS

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