BUSINESS

RTS Follows World Trend After New York Air Crash

By Victoria Lavrentieva

Staff Writer

MOSCOW - The tumble by World markets on Monday after a passenger jet crashed in New York, sending airline and insurance stocks down by as much as 12 percent, also backed Russia's benchmark index off its highest level of the year.

The key RTS index hit at a 2001 high of 233.3 in intra-day trading before falling nearly 4 percent on the news of the crash, just one hour before the markets closed in Moscow. The RTS closed at 223.97, a half a percent off Friday's close.

Traders doubted, however, that fresh fears of terrorist attacks gripping Western markets would lead to massive sell-offs of Russian corporate paper, as market fundamentals remained strong.

"I didn't see any panics and huge sells-off after Sept. 11, and I don't exclude the possibility that the market may open on higher levels tomorrow", said Alexei Dolgih, trader with Troika Dialog.

"Assuming that you don't have any more disasterous events like this, then Russia will continue racing," said Roland Nash, chief economist with Renaissance Capital.

The RTS has gained 59.5 percent since Jan. 1, making it the second-best-performing stock index in the world this year, trailing only China's Shanghai B, which has risen by 61.48 percent in dollar terms.

However, it is still less than half of its historic high of 570, reached Oct. 3, 1997. In terms of capitalization, the value of all Russian stocks traded over the counter is now about $73 billion - $11 billion of which is accounted for by Gazprom - but is still far below the $110 billion figure before the 1998 financial crisis.

"What we've seen in the last month is the new set of investors coming to Russia who haven't looked at Russia in the last three years. It changes the market perception and the way people think about Russia, which will drive the market higher," said Nash.

"The Russian market is currently undervalued compared with better-than-ever macroeconomic performance," said an analyst with a large Western investment fund.

Some analysts said that the full value of the RTS now is about 350 points, if the risk-premium associated with Russian eurobonds is taken into account.

"Obviously, we won't hit 350 any time soon, but what is also important to remember, if we compare the markets, is the profitability of the companies," said Nash. "[Profitability] is much higher now than it was in 1997, so there are more fundamental reasons for Russian market to grow and companies are different too."

The investment bank United Financial Group recently upgraded its RTS forecast for the last quarter of the year from 170-215 to 200-240. And Renaissance Capital predicts the RTS will 250 by year's end.

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