MOSCOW. March 1. (RIA Novosti's economic observer Nina Kulikova.)
Russia's stock market has demonstrated impressive growth of late. In 2005, the RTS index (the indicator of the Russian stock market's development calculated on the basis of 50 companies' securities) rose by 83% -- from 614 to 1,125 points. Recently, it exceeded the new historical record of 1,500 points.
Oleg Safonov, the RTS president, said that the record rise in the RTS index was outstanding not only for Russia, it was the highest growth rate of a financial index in the world. Anastasia Vechirko from the Troika-Dialog investment company says that in 2005 the RTS index exceeded by far most main world indices: the United States' NASDAQ added slightly more than 1% according to the yearend results, and Japan's NIKKEI - 24%. According to the MICEX data, close results in the developing market were registered only by Turkey (up 59.3%), Korea (54%), and India (Bombay, 42.3%).
Experts explain this growth by gradual improvements in Russia's investment climate. According to A.T. Kearney's research, Russia rose to the sixth position in the FDI Confidence Index 2005 after China, the United States, Britain, India and Poland (Russia was 11th in the FDI Index issued in March 2005).
The country's macroeconomic stability has a significant effect on the stock market. According to tentative data of the Federal State Statistics Service (Rosstat), Russia's GDP grew by 6.4% in 2005. Probably, the investors assessed positively Russia's early repayment of more than a third of its debt to the Paris Club in 2005, the full repayment of its debt to the IMF, and the adoption of the law on the liberalization of the share market of the Russian gas monopoly Gazprom. The gradual upgrading of Russia's credit rating also had its effect. Over the past several years, Russia was given the investment-grade rating by all major international rating agencies, such as Moody's, Fitch and Standard & Poor's.
German Gref, Russia's Economic Development and Trade Minister, says that the investment climate in Russia is obviously improving. It is worth noting that foreign companies which do not work in Russia assess the investment climate in Russia much worse than it really is.
The investors probably considered lower political risks in the country as well: the misgivings caused by the Yukos case are gradually receding into the past. Some experts believe that the factor of the deferred demand for Russian shares played an important role last year. If it had not been for the Yukos case, the RTS index would have reached the 1,000-point mark earlier.
In addition, the growth of the securities market is influenced by high oil and petrochemicals prices and its correlation with them is fairly high. Actually, the oil and gas sector constantly tops the list of the Russian stock market majors. The MICEX data for 2005 show that some of the blue chips, including Gazprom and Transneft shares, registered up to 200% growth. The prices of LUKoil ordinary shares also rose considerably, by about 100%.
Russia's positions on the global IPO market are also growing stronger (IPO is the initial offering of a company's shares on the public market). The past year saw a record number of Russian companies entering the international stock markets.
According to the MICEX data, in 2005 Russian companies attracted around $5 bln through IPOs on the stock markets in Russia and abroad. This is about 70% of the total investment attracted by Russian issuers since 1996. (In 2004, for instance, Russian companies attracted only about $700 mln.)
The main contribution was made by AFK Sistema, a Russian multisectoral holding oriented primarily to the market of telecommunication services in Russia and CIS countries. In February, the company attracted $1.56 bln in London, and the demand exceeded supply by 160%. Novolipetsk Steel (NLMK) also entered the London Stock Exchange this year (it attracted $609 mln), as well as the Pyaterochka retail chain ($598 mln), the EvrazHolding iron and steel company ($422 mln), and some others.
In fact, the past year was the year of a big start for Russian companies' IPOs, which could not but attract the attention of international financial circles.
In late February, London hosted its first conference on Russian IPOs where representatives of the international financial community discussed the Russian companies' growing striving to enter international financial markets. The booklet issued during the conference reads, in particular, that over the past six months Russian companies earned $2.4 bln from operations with their securities on the London Stock Exchange, whereas this indicator for the past ten years was merely $1.6 bln.
It was forecasted at the conference that by the end of this year Russian companies may take the lead in the world in terms of the IPO volume, and Russia may become the world's fourth largest issuer of securities after the United States, China and France. This opinion was voiced by Roland Nash, chief strategist at the Renaissance Capital investment company. By the end of the year, Russia will be too much in the headlines of financial news to be ignored, he said.
What is important is that the sectoral structure of companies publicly offering their shares is changing in favor of the non-raw material sector of the Russian economy. Roland Nash said that the oil and gas sector, the iron and steel industry, and the banking sector still remained the most attractive sectors for international investors. However, the diversification of interests is also in evidence, the expert added.
At the same time, such an active entry of Russian companies into international stock exchanges may have both positive and negative consequences for the domestic stock market. Oleg Viyugin, head of the Federal Service for Financial Markets, believes that in the next few years the country's stock market may be confronted with a real asset flight problem. He said that even today foreign pension funds accounted for 70% of the Russian stock market capitalization, and Russian investors for merely 30%.
Russian financial institutions are doing their best to encourage national companies to hold IPOs in Russia. They endorsed amendments to laws facilitating the issuers' entry into Russian stock markets. In Oleg Viyugin's opinion, in order to solve this problem, it is also necessary to develop the market infrastructure, step up the formation of a system of institutional investors and ensure protection of the investors' rights during the purchase of new securities.
Despite all these problems, prospects for the Russian stock market in 2006 seem promising. Quite a few companies, including state-owned Rosneft and Vneshtorgbank, intend to hold IPOs in the current year.
Rosneft is looking into possibilities to place its shares through IPO on the Russian, Tokyo and London Stock Exchanges, hoping to attract about $15 bln. In Roland Nash's opinion, Rosneft's forthcoming IPO will be one of the largest in history.
Vneshtorgbank is planning to hold its offering in November 2006 or the first quarter of next year, placing up to 25% of its shares on the Moscow and London stock markets in the hope to attract about $2.5 bln.
Oleg Safonov believes that Russian companies have huge prospects for IPOs on both domestic and foreign markets. In his opinion, the Russian companies' IPOs held in 2004-2005 were quite good in terms of number. However, this is an insignificant number compared to all companies forming the Russian economy, he said.
Roland Nash predicts 28 Russian IPOs worth $25 bln will be held this year.
