The Russian market was cheered up a package of anti-crisis measures announced by the government, the Central bank and market regulators on September 17 and 18. A better situation in global markets, especially the US where stock markets surged on the news the government plans substantial package of crisis prevention measures.

 

As a result Russian stock market opened sharply up on Friday morning. MICEX index soared 14% in the first hour and altogether by 25.40% since the start of trading session today. According to Reuters report a stellar increase of stock prices in Moscow prompted the MICEX exchange to halt trading in stocks from 10:15GMT for one hour.

 

Both market players and analysts expressed positive opinion about the unprecedented measures taken by the government. Putting all measures in money terms means the amount around RUB 3 trillion in help. However many of measures stretch in time while the immediate help will reach around RUB 0.5 bn. Perhaps most positive measure was the decision of the Central bank to slash mandatory reserve requirements for the banks by 4%, with the bank estimating RUB 300 bn in additional liquidity that will become immediately available to the banks.

 

The government’s decision to place RUB 1.5 trillion of budget cash with the state owned Sberbank and VTB, and also into Gazprombank, should boost market confidence. However smaller banks are expressing a concern that less of this cash is going to reach them. According to them of three banks only Sberbank was lending money to second-tier banks while VTB and Gazprombank preferred to credit first-tier segment. Overnight funding cost remained at 11-18% for second tier banks while the offer of money remained very scarce. One medium sized bank said they paid a 22% overnight rate to Sberbank in stock REPO. Currently Sberbank and other big players are reported to be applying 50% to 75% discounts for stock collateral.

 

The Central bank continues to offer large amounts in its REPO sessions and today put another RUB 400 bn on offer. The bank also increased coefficients used for collateral which means more cash in return for the banks.

 

We expect trading to resume very shortly and perhaps the market will continue climbing albeit slower than in the morning hours. Much will depend on the US market opening as global markets set tone for Russia market these days.

 

The decision to offer direct help and lending to stock brokers and banks should ease the situation on margin calls but perhaps much will depend on off shore counterparts of Russian banks. We had been told some London banks were cutting lines on Moscow banks.

 

The government’s decision to buy back shares from the market and targeting shares of state owned companies in particular should give a lift to these companies. Generally stock brokers see best chances in blue chips while are more sceptical about second tier and third tier stocks.

 

In the immediate perspective the economic outlook for Russia remains unaffected but perhaps one clear conclusion we can draw from the anti-crisis measures will be higher inflation. The government already sees inflation exceeding 12% this year and the outlook for 2009 is perhaps worsening substantially.

 

The crisis will also have impact on credit and thus far on investment and growth, so the economy is likely to decelerate in 2009. Still, this year outlook remains unchanged and the government sees a 8% growth in 2008 while we see a 7.5% growth.

 

In the last piece of news S&P just announced that it revised Russia’s sovereign rating down from positive to stable. Yet perhaps this hardly can be called the news. As it happens since quite a few years the rating agencies are always late in arriving for the ’’party’’. As Russia already trades to BBB there is little chance the outlook downgrade will have any big impact.