The Russia Journal

The Russian market moved without clear direction last week as foreign investors remained on the sidelines, disturbed by international trends and the situation in Chechnya, brokers said.

"There remains a significant volatility in global markets, in the U.S. market, mainly to the downside," said Martin Diggle, a director at Brunswick Warburg investment bank.

The Russian RTS index followed the performance of global markets, rising on Monday, falling for the three following days and recovering on Friday. The RTS index was up 0.4 percent over the week to close 84.5 on Friday.

The volatility in the world market was making people cautious, Diggle said.

"I think this volatility is making people stay away from investing in any market, especially one as illiquid as the Russian equity," he said.

"The other thing that keeps people away is the situation in Chechnya," Diggle said. "Uncertainty regarding whether there will be a war involving ground troops in Chechnya is obviously a concern to some investors."

According to Diggle, big swings on the commodity markets were adding to uncertainty in the short-term.

Overall, there were many reasons to stay out of the market and relatively few to come in, Diggle concluded.

"For foreseeable future, if this global volatility does not show signs of ending, it will make it difficult for significant investment to come to Russia," he said.

Turnover on the equity market picked up somewhat early this week to reach over $10 million on Tuesday, but then fell again.

Early in the week, local brokers were hoping a Bruns-wick Warburg investment conference would spur some buy orders, Reuters reported, but they were disappointed.

Brunswick Warburg last week hosted a three-day conference with around 200 guests in Moscow's Marriott Grand Hotel. Speakers included Russian finance minister Mikhail Kasyanov and special presidential envoy Mikhail Zadornov, along with officials of the 15 biggest Russian public companies.

But the conference failed to spark interest, and RTS volume fell to $3.9 million on Thursday.

Shares of Rostelecom fell another 5 percent for the week to trade around $0.76 late Friday. Rostelecom's prolonged slump is likely due to management changes in the Russian telecom sector, as well as the uncertainty surrounding a potential merger with Svyazinvest, analysts said.

"There was a change in the management of Gostelecom (Russian telecommunication regulatory body), the general director of Svyazinvest could probably be changed in October, and there were rumors of potential change of Rostelecom management," Andrey Braginsky, a telecom analyst at Renaissance Capital, said. "It is not clear how the situation will develop."

Braginsky added that part of the drop in Rostelecom's share price is due to the fears of Rostelecom shareholders that a rumored merger with Svyazinvest would be unfavorable for them.