VZCZCXYZ0040
PP RUEHWEB

DE RUEHMO #0841 0591459
ZNR UUUUU ZZH
P 281459Z FEB 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 7764
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS MOSCOW 000841 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EUR/RUS, EEB/IFD 
TREASURY FOR BAKER/GAERTNER 
NSC FOR TRACY MCKIBBEN 
USDOC FOR 4231/IEP/EUR/JBROUGHER 
 
E.O. 12958: N/A 
TAGS: EFIN ECON RS
SUBJECT: RUSSIAN STOCK EXCHANGES STILL DOWN AFTER STORM 
 
¶1.  This message is sensitive but unclassified, and not for 
internet distribution. 
 
¶2.  (SBU) The apparent sharp increase in emerging market risk 
aversion that sent Shanghai's stock market tumbling on 
February 27 was also manifest among Russian equity markets. 
The benchmark dollar-denominated RTS Index fell 3.28 percent, 
and the broader, ruble-denominated MICEX Index was down 4.1 
percent.  Trading volumes were 63 percent higher than the 
4-week average. 
 
¶3.  (SBU) Just before the end of trading on February 28, the 
major indices repeated the same general magnitude of the 
previous day's slide, with the RTS down 3.5 percent and MICEX 
down 3.8 percent.  Many of our market analyst contacts have 
called the share-price drop a "spring bull-market 
correction."  United Financial Group Chief Economist Yaroslav 
Lissovolik noted that the underlying fundamentals are 
generally sound and, in some cases, improving.  He said that 
steel producers, for example, have garnered stock 
recommendation upgrades among many investment houses as a 
result of their enhanced cost controls in recent months.  He 
characterized the price drop for Novolipetsk Steel (-6.8 
percent) and Severstal (-4 percent) as profit-taking.  Troika 
Dialog Chief Economist Evgeny Gavrilenkov echoed this 
assessment, equating the correction with the liqudity squeeze 
that caused a similar decline in Russian equities during May 
¶2006. 
 
Comment 
------- 
 
¶4.  (SBU) Ongoing questions about the underlying quality of 
emerging market assets could translate into a short-term 
selloff of Russian stocks during the next two months.  Retail 
investors in the country's growing mutual fund market may 
even lead the way down as they wait for the proverbial dust 
to settle.  Many of the analysts we talked with, however, 
maintain a bullish outlook for Russian stocks in 2007. 
BURNS