Madness ensued on the currency market last week. On Monday after news that the head of YUKOS had been arrested the dollar went up by 16 kopecks and the Central Bank supported the further rise of the dollar. However, by Tuesday market participants faced a ruble liquidity deficit. The IBC rate skyrocketed to 19-28% p.a. and correspondent accounts reached 90 billion rubles. The dollar rate fell to a new two-year low. However, after word of the YUKOS stock freeze, market players again began buying up hard currency, though their reaction was fairly calm. Trading remained light. “In the long term, the market anticipates the further strengthening of the ruble under the strict control of the Central Bank,” believes Andrei Larkin, Financial Director at Delta Bank.
On the ruble bond market downward trends and light trading predominated. The correction following dramatic growth (after Moody’s raised Russia’s rating) was deepened by investors’ lack of ruble resources. “The situation surrounding YUKOS had little influence on investors’ mood,” explains Sergei Krikun, Leading Specialist in the Trading Operation Division at Sodviznesbank Commercial Bank. “The state securities sector is not affected much by these kinds of events, as investors run to GKO-OFZ bonds from other, riskier financial markets.”
The negative political atmosphere led to severe declines on the corporate and sub-federal bond market early last week. Increased demand for rubles at the end of the month did not contribute to investor optimism. As a result, prices for sub-federal bonds fell 1.3% by the end of the week, while corporate bonds fell by 0.8% with a significant loss of liquidity.
Pessimism also reigned on the Russian foreign debt market. At the beginning of the week, prices for Eurobonds copied the downward slide of American bonds. After a small upward correction, the decline continued due to the YUKOS Affair.
The stock market flew into a panic over the course of the week. The RTS lost 16.5%, falling below 500 points. All liquid stocks saw a significant decline in relative price, but Sibneft, YUKOS, and Surgutneftegaz suffered most, losing 20-28%. The first wave of sales swept over the market after the arrest of Mikhail Khodorkovsky. “On Monday MICEX and RTS had to stop trading in order to stop the panic,” recounts Yuri Makeyev, an analyst at IT Invest. Before investors had a chance to get over their initial shock, they faced yet another unpleasant surprise. On Wednesday, the announcement came that the head of the presidential administration, Alexander Voloshin, was stepping down and on Thursday, the YUKOS shares belonging to the Menatep Group were frozen. Igor Vain, Director of the Client Relations Department at United Financial Group, notes: “I think that YUKOS needs to convince the market that, despite the absence of leaders like Khodorkovsky, Lebedev, and Nevzlin, the company can continue to function. It can be managed, monitored, and develop. If they can demonstrate this over the next few months, it will be possible to improve the company’s capitalization situation significantly. If the market loses confidence in the current management, we will see further declines in the price of YUKOS shares.”

The Financier’s Date Book

November 5 The City of St. Petersburg places1.5 billion rubles in bonds

November 5 The City of Moscow places 5 billion rubles in bonds

November 30 MTS releases its results for the third quarter of 2003 according to the US GAAP

November 30 Golden Telecom releases its results for the third quarter of 2003 according to the US GAAP