Russian Daily Monitor

Regional telecoms get local tariffs hike

The Federal Tariffs Service reported Friday that it had increased local
tariffs for Center Telecom, South Telecom and Ural Svyazinform by 21% for
individuals and 15% for organizations. Long distance tariffs will decline
by 5%, on average. The new tariffs are effective from September 1, 2005.
The tariff rebalancing is needed to compensate for inflation and the
removal of cross-subsidization. The news is positive for regional telecoms
as it should help to maintain revenue dynamics and improve profitability.

Money market

Russia
,s FX market continues to track euro-dollar movements, ignoring all
local developments. Heavy Central Bank purchases have been on view since
the start of the year with correlations between dollar-rouble and
dollar-euro dynamics above 90%.
While the short-term stability of the currency basket is unlikely to be
undermined, the mid- to long-term outlook seems to favour a stronger
rouble. However, with the dollar gaining ground globally, we would not be
surprised to see the Central Bank allowing the dollar-rouble rate to hit
28.7 in the near term.

Bond market

No significant movement is expected on the rouble bond market in the
coming days, leaving prices to drift sideways. Although the end of the
month is, as usual, marked by a minor liquidity squeeze ahead of tax
payments, hefty excess reserves recently accumulated by major banks will
likely prevent short-term money market rates reaching last month
,s highs.
At the same time, a continuing surge on the local stock market and a
dollar rebound against the rouble are shaping up as significant short-term
factors that could temper the enthusiasm of rouble bond investors.
Russian Eurobonds continue to track benchmark movements, prodded by
speculation about the U.S. Federal Reserve
,s interest rate policy and
swings in foreign demand for U.S. assets. As there are no serious data
releases due at the start of the week, the market is likely fail to find a
clear trend in the coming days. However, in the mid-term, the downside
risk in U.S. Treasuries is building up as recent data on manufacturing,
employment and inflation in the United States all seem to favour tighter
monetary policy. At the same time we believe that Russian Eurobonds may
retain their current positions backed by notable improvements in sovereign
debt management.
On Friday, the EMBI+ Russia index increased by 2 bps to 138 with the
benchmark yield stayed unchanged at 4.21%. The yield of indicative
Russia
,30 grew slightly by 1 bps to 5.59%.

Equity market

The end of the trading week failed to dampen enthusiasm for Russian
equities on Friday with the RTS climbing 1.46% to 852.7, although trade
was sluggish. With world oil price regaining momentum (Brent closed at USD
64.54/bbl, up 2.87%), the oil and gas sectors saw further growth: Gazprom
locals and ADSs rose 1.91% and 1.93%, respectively, Sibneft surged 1.65%
and LUKoil gained 2.22%. In New York and London, most stocks also closed
in black: NOVATEK jumped 4.39%, LUKoil ADRs rose 2.58%, and Surgut closed
up 1.8%. The rumoured privatization of Svyazinvest helped boost investors
,
interest in telecoms with Rostelecom ADRs adding 4.15%.
We expect, however, that growth to take a break on Monday. Vedomosti
reported on Monday that Gazprom has already acquired 3% of Sibneft on the
open market, which the gas giant needed if it wanted not to allow Rosneft
to get 25% ownership of the oil company. This should diminish speculators
,
enthusiasm over Sibneft and it price should slip. However, investors may
still price in the news on Svyazinvest
,s privatization and strong oil
prices, which could provide support for the market.