The problem of where to invest money has never lost its relevance in this country. Until recently, market operators and the general public have had different investment priorities, with the former investing in stock and currency markets and the latter converting their money into dollars or putting them in a bank.
Last year shook the Russian people's belief in the firmness of the American dollar while at the same time restoring their confidence in the national currency, strengthened by high oil prices and the Federal Reserve's interest rate cuts.
By the end of 2003, the official dollar exchange rate in Russia decreased by more than 2.5 points to R29.31, down from R31.88 at the year's start. The Russian stock market was also growing at a spectacular pace last year, with the RTS index's annual growth topping 57 percent.
These tendencies continued into the first quarters of 2004. According to Russian analyst Alexander Razuvayev, the RTS index rose by nearly 40 percent to 781.55 points in January through April 12 this year whereas the dollar and euro rates of exchange went down, respectively, by 1.3 and 6.6. percent in the Jan. 1-to-May 15 period.
The slow paces of growth and the instability of American and European economies, as well as the consolidation of the ruble owing to high oil prices and the inflow of foreign capital at the outset of the year, made the national currency an attractive instrument for investing, analyst Roman Andreyev said.
Now the dollar is picking up again. The U.S. economy continues to grow and the Federal Reserve contemplates raising its interest rates. As a result, the situation on emerging markets is deteriorating. Capitalization of Russian companies has been on the decrease since April.
"The RTS index is now only slightly higher than last year's close-567.25 points. The interest on ruble instruments with fixed interest rates has remained virtually unchanged while that of Eurobonds has increased," Razuvayev said.
"In the second quarter [of this year], an increasing number of investors have been paying attention to U.S. economic indices," Andreyev remarked. Current economic growth and mounting inflation in the United States will inevitably make the Federal Reserve raise interest rates, leading to higher borrowing costs and lower interest on investment in emerging markets. Already, many Russian investors have begun selling off their emerging market securities and buying U.S. dollars instead, said Andreyev.
"Russia is posting high rates of economic growth-8 percent in the first four months of this year," Razuvayev noted. "The political situation is stable." The RTS index is sure to reach the 800-point mark, he predicted.
