Zhanna Nikitina, a 60-year-old Russian babushka, is a full-time investor. She says she brings in as much as $1,000 a month playing the Russian market with her own and her son's savings--a huge sum in a country where most grandmothers must survive on monthly pensions of $35. Nikitina's hangout is the Moscow stock center, a day-trading center set up with the help of the city government. On a recent afternoon, she was sitting with 40 other regulars watching a big screen where stock prices are displayed. Spontaneous applause broke out. Blue chip Unified Energy System, Russia's electricity monopoly, was up 7% in the day's trading. For Nikitina, tracking the ups and downs of the Russian Trading System (RTS), the country's main bourse, is now an obsession: "I have no time to make jam out of the fruit we grow at the dacha," she says with a grin.
The Russian stock market is steadily clawing its way back. Until recently an enclave for international gamblers and local tycoons, the market is gradually becoming less risky for ordinary investors such as Nikitina. Across Moscow, a budding, though still tiny, class of stock-pickers--most of them professionals and pensioners--are buying shares and hoping for the best.
But is it really safe to dip one's toes in these frigid waters? After all, back in 1998, tens of thousands of local and foreign investors lost billions when the government simultaneously devalued the ruble and defaulted on its bonds. Foreign portfolio managers, who account for close to 50% of daily trading volume, will likely flee again at the first sign of trouble. The primary risks nowadays are of a sudden dive in oil prices or a financial crisis in another emerging market.
Fears of a debt default in Argentina are already spilling over into Moscow's bourses. Still, the RTS is up close to 37% this year in dollar terms, making it the third-best-performing exchange worldwide. The main factors driving the seven-month rally are greater political stability under President Vladimir V. Putin and sounder economic fundamentals. "Every macro- and microindicator points to Russia as being a good place to invest," says William Browder, managing director of Hermitage Capital Management, a Russia-dedicated fund with $450 million in assets.
NEW BOSS. Moves to improve corporate governance at some of Russia's top companies have also bolstered the market. In May, investors were cheered when Putin installed a reform-minded boss at Gazprom, the state-controlled gas producer which alone accounts for 21% of the Russian market's $68 billion market capitalization. And Yukos, the country's second-largest oil company, has delighted minority shareholders by canceling a series of dilutive share issues. Its share price is up 95% so far this year.
Local analysts insist that Russia's stock market recovery is no bubble. In fact, managers of emerging Europe funds have increased their exposure to Russia over the year. Still, trading volume on the all-electronic RTS is averaging just $51 million a day, down from its $430 million peak in the market's heyday in 1997. "Western stock markets are in very bad shape. People are losing their shirts. They will not be inclined to make speculative investments," says Hans-Joerg Rudloff, chairman of Barclays Capital.
The government is doing its bit to sustain the rally. This month, the Duma is expected to approve legislation to supplement the state-run pension system with privately managed funds. The shift, which is expected to begin in 2002, will free up billions of rubles in savings for equity investments. And come October, Russian legislators are expected to pass a bill that will tighten regulation of the fledgling mutual-fund industry. That should boost investor confidence, which has been shaken by pyramid schemes and other fraudulent activity over the past decade.
Good steps. But if the Russian market is ever going to be considered more than a hive of speculators, it will have to prove that it can hold its ground for longer than it has so far--and not betray those naive grandmothers.
By Catherine Belton in Moscow
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